Here’s Where Brokers Go Wrong in Tackling ESMA Restrictions

The European Forex industry has been under for a while now. While many brokers consider the new set of rules to be extensively limiting, others are praising them for protecting traders. These rules concern a wide range of items: prohibiting trader benefits (e.g. bonuses), removing IB rewards (trading activity-based), and most importantly – downgrading the maximum available leverage.
In this article, I decided to focus on how EU licensed Forex brokers have been handling the rules concerning . To find out, I got in touch with the support and sales teams of the largest Forex brokers, in terms of their trading volumes. Through the available channels, I requested help from said companies, specifying that I was a citizen and resident of the EU, looking to trade with high leverage. During the chat, I specifically requested 1:100 and 1:200 leverage options, which are above ESMA’s imposed 1:30 maximum leverage for retail traders.

Complying and Bypassing Regulation
Of course, most companies specified that the account would have to be upgraded to a pro account. But, within two to eight minutes of the start of communication, each company would offer us an alternative. Most of the top rated companies are also in areas where ESMA regulations don’t apply. The representatives of these companies would direct us to create accounts with entities licensed in:

  • The Bahamas (three companies)
  • Australia (five companies)
  • South Africa (two companies).
  • Insisting on making an account with the broker in Europe resulted in us having to register with the broker and fill out documentation that would prove our compliance with three requirements:

  • have a history of large scale transfers with the broker
  • have assets in excess of 500,000 euros
  • have years of professional Forex trading experience
  • Proof of two was required, but not with all brokers. Some of them simply asked us to confirm and sign, giving us almost immediate access to professional trading.

    Konstantin Rabin
    The discovery is a little daunting: out of the 12 EU brokers with whom I got in touch, 10 directed an EU resident to register with their brokerages in alternative jurisdictions where ESMA regulations aren’t enforced. The two that did not direct us to do so do not have entities outside of EU borders and simply asked us to verify (without proof) that I qualify to be professional traders.
    Is It a Proper Way Out?
    While sending EU traders to entities with alternative regulation might be a decent short-term strategy, I feel it might fail in the long run. I believe there are better alternatives that allow traders to participate in high leverage trading. I also believe that is going to catch on and start imposing more strict regulations upon brokers.
    Helping traders achieve higher levels of education and become actual pro traders is a better option. By creating traders that are astute at using complex analytical techniques during trade, brokerages will be able to encourage their growth in terms of ability and capital. Eventually, this will lead to traders becoming eligible for pro trading within EU.
    Brokers for Education
    In the past, brokers considered their efforts as a marketing activity. The webinars and seminars mostly touched upon basic topics: What is FX trading? The basics of technical analysis, etc.. However, it does seem like in the post-ESMA times things are finally changing.
    Recently, there has been news of a series of professional seminars organized by Elite CurrenSea and sponsored by XM. These events are mostly centered around education regarding trading tools and analysis and feature award-winning speakers. The target audience for the events is either professional traders or those who are looking to become pros.
    Previously, a similar event was held in Ljubljana, Slovenia. Elite CurrenSea has emphasized the importance of education within the trading industry and are encouraging to get better by learning more about professional trading. They are hoping to create a new class of retail traders, who can trade on a professional level and are eligible for pro trader categorization.
    Another example of constructive action towards educating traders is the product offered by the cooperation of HotForex and BlueSkyForex. These two brokerages have taken it upon themselves to produce a large library of webinars, dedicated to helping their traders achieve higher levels of mastery over the markets.
    These webinars concern:

  • Live Analysis
  • Wolfe Wave trading
  • Scalping Strategies
  • And other advanced techniques
  • The webinars on the same subject take place several times over. This gives traders a chance to either get refreshed on the concepts or ask questions they had not previously considered.
    Admiral Markets, another major Forex broker, is also offering an in depth, 21-day Forex course. The course, according to the broker, is intended to provide even complete beginners with the tools and knowledge needed to trade successfully on an almost professional level.
    Final Thoughts
    Sending users to different jurisdictions will empty the EU Forex market. It is important for brokers to understand that the best way to of pro traders is to provide opportunity, rather than give an easy way out. Sending traders to other jurisdictions is a short term solution that provides little benefit to either side. Positive action towards promoting trader education allows traders to get better at their trade and achieve new heights, while also increasing broker revenue.
    Konstantin Rabin is the CEO of Finance Makers – a digital marketing and content creation firm for the financial services industry

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