ESMA bans offering of binary options to retail investors, introduces restrictions to CFDs

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The authority had previously indicated that a ban on the marketing, distribution and sale of binary options to retail investors would be introduced. For CFDs, restrictions on their offering, including caps on leverage based on the underlying asset will be imposed.

The strictest restrictions will be imposed on cryptocurrency CFDs. Binary options — Marketing, distribution or sale of binary options to retail investors has been prohibited. If the measures do not achieve the intended goal, ESMA will consider extending the measures before the three months are over. The reason for protection is mainly because both CFDs and binary options are quite complex and they lack transparency.

The negative features for binary options are structural expected negative return and an embedded conflict of interest between providers and their customers. Excessive leverage on the part of CFDs prompted the restrictive measures to be introduced. A similar tendency for binary options was also reported by NCA. Retail investors will be assured of getting a common minimum level of protection.

The measures on CFDs will ensure that investors cannot lose more money that they put in. Use of leverage and incentives and clear risk warning to investors will have to be done by service providers.

He announced the new measures on 23rd March The promise of extremely high returns and easy-to-trade digital platforms in an environment which has historically been associated with low interest rates attracts retail investors.

This is despite the fact that the products come with excessive leverage and are inherently complex, commented Maijoor. According to ESMA, a pan-EU approach towards these products was necessary given that these products are not necessarily geographically restricted.

ESMA considers itself the right body which has the proper authority and efficiency to protect the EU retail investors. After the measures have been published on the OJ, it will take one month for the binary options measures to be effective and two months for CFDs. Stay up to date with the financial markets everywhere you go. Leverage limits for CFDs Negative balance protection on a per account basis. This will provide an overall guarantee limit on retail client losses.

A restriction on the incentives offered to trade CFDs A standardized risk warning. What next for CFD and binary options traders? Comments 0 comment s Click here to cancel reply.

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