ESMA (European Securities and Markets Authority) has put the final nail in binary options coffin – which let’s be honest everyone knew was coming. What the internet wasn’t expecting was ESMA bringing down their rusty steel cleaver down on leverage. Oh, and that whole margin stop out thing, but most brokers, traders and fair-weather investors lost their collective minds over the leverage restriction.
Why? You’d think a measure that protects traders against losses would be popular…well most traders are receiving these excessive leverage restrictions as ESMA trying to protect traders against themselves. The argument is that if you are trading you know the risks and if you don’t that’s not the industry’s fault now is it?
It seems that the EU has become the new “Thanks Obama”. Everything that is wrong with anything is the EU’s fault. Enough politicking though – many traders (and a few brokers) are complaining that the restrictions on leverage is an overenforcement and an overcorrection. They believe that this is just another example of the EU’s nanny-state mentality. Harsh I know, but don’t shoot the messenger – I am just being the internet’s ambassador.
The Reddit Reckoning
If you want the people’s reaction to any subject – reddit is the place to find it. Of course, that reaction comes with a heaping side of offensive, crude language and more often than not racial epithets. I have dived deep into this pool and gathered only the nuggets – censored and slightly paraphrased of course:
“The measure will be ineffective at protecting new traders”
“I need more equity to trade due to margin rules – this is outrageous.”
“I am elated, binary options will no longer be offered – they are a cankerous form of trading.”
Once again, I need to mention that these have been slightly modified from the original source material.
IG the Instigator
The CFD broker IG official stance on the regulations were that they support ESMA’s mission but are not completely OK with the pretty significant restriction of leverage. Instead of getting mad though IG got sneaky. They set up a platform which their traders could go an air their grievances. According to some estimates ESMA received tens of thousands of customer comments and complaints. Although this sentiment is reflected across both IG’s and other internet forums – ESMA shouldn’t have the say in the way traders use their money, even if its destructive or irresponsible.
Binary goes Bye
Another relatively extreme measure ESMA will enforce is completely disbanding binary options in the EU. This is because they deem them too risky and on top of that are favored by novice traders due to their ease of use. Maybe ESMA should just regulate novice traders.
The internet thinks that overall prohibition of binary options is good. Almost every forum had at least a dozen stories about relatives, friends and even themselves that lost a lot of money trading binary options.
So the internet bids a not-so-fond farewell to binary options.
This isn’t an official association – but the internet is abuzz with official statements from a slew of brokers that support and welcome the new regulations in their entirety. Just like when you eat a chicken wing sinew and all. These brokers are older players in the CFD industry and with an established name they likely want the industry as transparent as possible. The companies part of the unofficially named by me right now “ESMA United” include: easyMarkets, Plus 500, FXCM and CMC Markets..
So ultimately no matter what the internet thinks, ESMA wants to protect the clients that participate in complex financial instruments. Regulation will always exist and traders should actually embrace it, because it gives them a filter between genuine honest financial service providers and ones that are just out for themselves.