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Recent ESMA  regulations have overhauled the retail trading industry. Although they probably haven’t been met with all the warmth especially from the brokerage side, yet they are here. So, what do the new rules entail?

First of all, European Security and Market Authority has implemented the measures aimed at providing the better protection to retail clients trading leveraged products, such as CFDs and FX. Perhaps the biggest game-changer in new regulations is the leverage limit. According to this point, the leveraged financial products have the cap on the maximum leverage used which, in turn, raises the required capital threshold for the retail trader. Hence, every CFD broker has to offer:

  • 30:1 leverage for major currency pairs
  • 20:1 for non-major currency pairs, gold and major indices
  • 10:1 for commodities other than gold and non-major stock indices
  • 5:1 for individual equities and other reference values
  • 2:1 for cryptocurrencies

Besides prohibition of promotion and advertisement of CFDs, another important rule to mention is that the brokers are now obliged to disclose the information about the actual percentage of retail accounts that lose money. This is done in order to explicitly demonstrate the risk and alleviate the conflict of interest. Luckily, for honest EU providers, like Trade.com, this is not a problem. For example, according to the latest Trade.com reviews, such information is displayed properly on the website and we tend to believe that brokers with an equally good reputation follow a suit.

The turbulence in the CFDs market, however, may have the potential upside for the crypto exchanges for the virtual currency trading.

Crypto Exchanges Now Offer a Better Exposure

With an old maximum leverage of 5:1, CFDs offered better speculative exposure for the retail crypto traders. Usually, the number of coins was narrowed down to no more than top 20 in terms of liquidity, which was supposedly enough for most speculators. However, previously, the margin requirement for cryptos was already quite high, not to tell about the rollover/swap fees that often followed. Yet crypto CFDs were still a comfortable investment vehicle. Now the situation seems to have changed drastically.

Essentially, ESMA regulations dealing with the cryptocurrency exchanges could become a more viable option for trading virtual currencies. There are several facets to look at. Firstly, the crypto exchanges offer big potential leverage for their margin trading functionality, while some exchanges can provide the leverage as high as 100:1, like Bitmex. Now when the margin requirements at CFDs providers are substantially higher and the leverage is capped, for those who prefer buying on margin may want to choose the crypto exchanges for the speculative incentives. Secondly, for long-term positions, or better say holding, it is much better to purchase the coin directly, as the buyer does not incur any additional costs except covering the coin price and fees if such apply.

Last but not the least important aspect is the wider selection of cryptocurrency pairs to trade at the exchanges, which is still somewhat limited among most CFDs brokers. Considering the situation on the market, it would be fair to assume that the crypto exchanges may see their volumes spike soon if the retail crypto traders decide to migrate.

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