New Forex Regulations in the European Union!

New Forex Regulations in the European Union!

Forex regulations are about to change on the 1st of August for all traders in the EU.

What’s happening?

The European Securities and Markets Authority will force brokers to lower the leverage they offer on the four major currency pairs – EUR/USD, USD/JPY, GBP/USD and USD/CHF to 30:1.

Minor pairs will see an even larger drop to 20:1. Brokers have been aware of these changes for the last six months or so and many have started adapting their strategies and marketing.

Binary options will be banned entirely and Contracts For Difference (also known as CFD’s) will also have a more limited range.

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Are these forex regulations good or bad for traders?

It’s not a black and white situation but one of the new developments coming from these forex regulations that looks good for traders (at least on the surface) is the new mandatory negative balance protection. It’s a failsafe mechanism that guarantees that a trader can’t lose more money than their balance, in case of gigantic movements in currency pairs (like the one for EUR/CHF and USD/CHF back in 2015. That’s when the Swiss National Bank disconnected the franc from the euro).

Any changes for stocks?

We’re looking at limits of 5:1. Stock trading hasn’t managed to gather too many fans in the EU, not even for its own stocks from the FTSE, DAX and CAC.

This new limit will likely make it even harder for day traders, as most of the spikes and drops in company shares concentrate around earnings and several major announcements per year.

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What about gold, oil and indices?

Gold and indices will have a 20:1 limit. With sharper moves happening more often for them, the new ratio probably won’t affect most traders who are prudent but some may find it difficult to adjust their appetite for risk.

Oil, both for Crude and Brent, is down to 10:1. One of the instruments that sees a relatively large average volatility will still offer plenty of excitement with regular swings in price, but the profits and losses will be smaller for the risk-on traders.

Will Crypto’s be affected?

Most brokers already offer low leverage – or none at all – for the likes of bitcoin, ethereum and ripple. These new regulations were conceived before the boom of cryptocurrencies and will have a small effect on their trading through European brokers.

Read next: How to Choose a Forex Broker?

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