ESMA rules and Offshore Broker IC Markets (Sticky Post)

ESMA rules and Offshore Broker IC Markets

This post is about the new ESMA rules and an alternative offshore broker called IC Markets that you can sign up with.

ESMA Margin increases

You will have heard about the new European Securities and Markets Authority (ESMA) rules that will come in effect in early July this year. As a result, minimum margins on all CFD and spread betting markets will increase across the industry. Additionally, ESMA has chosen to ban the marketing, distribution and sale of binary options to retail investors. As the UK is still part of the EU we are subject to these rules, and even after we have left the EU, we will most likely adopt the financial rules and regulations as they stand at the time we leave.

ESMA is introducing the following leverage restrictions/increases for retail traders:

  • 30:1 leverage on major currency pairs = 3.33% margin
  • 20:1 leverage on major indices = 5% margin
  • 10:1 leverage on commodities (excluding gold) = 10% margin
  • 5:1 leverage on equities = 20% margin

These restrictions will result in increased margins across all markets

A lot of you have asked me what you should do, as if you have an account balance of say £1000, you won’t have much room to trade.

What can you do?

Well, there are a few things.
1 – deposit more money into your account to cover the increased margin. However, depending on your trading size and style, you may need to put in more than you want. You could do lower stakes of course, but do you want to….?
2 – IG and some other brokers allow you to go “professional” – but you need to be eligible and have substantial assets/experience.
3 – stop trading altogether – not ideal really as trading is a useful way to make some extra money and if you are reading this then hopefully being part of my community has led to successful trades.
4 – this is the main one, you can trade with a broker that isn’t subject to the ESMA regulations. Be careful here, as the slightly more dubious brokers (including many binary ones) registered in places like Cyprus are not worth trading with in my opinion. Far too risky in terms of depositing your money with them!

I have been doing a lot of research into this final point and have decided to recommend IC Markets, based in Australia, licensed and regulated by the ASIC – Australian Securities and Investments Commission. This ensures that your account with them is protected by the Australian equivalent of the FSC.

IC Markets

In a lot of ways they actually look better than some of the UK brokers! IC Markets are a global broker based in Sydney, Australia and allow you to fund and hold your account in Pound Sterling as well as other base currencies. At the moment IC Markets is allowing sign ups from the UK.

A true electronic communications networks (ECN) trading environment allows you to trade online on institutional grade liquidity from the worlds leading investment banks and dark pool liquidity execution venues, allowing you to trade on spreads from 0.0 pips. You can now trade along side the worlds biggest banks and institutions with your order flowing straight into a true ECN environment, with no dealing desk or price manipulation.

An ECN broker uses electronic communications networks (ECNs) to give clients direct access to other participants in currency markets. Because an ECN broker consolidates price quotations from several market participants, it can generally offer its clients tighter bid/ask spreads than would be otherwise available to them.

Other benefits:

  • Rated Excellent on Trustpilot
  • Lower spreads, 1 point on the FTSE 100 for example, zero in some cases
  • Faster execution with servers based in London and New York
  • Fully regulated by the ASIC
  • Web based, MT4 or 5 platform, mobile apps for iOS and Android
  • Minimum funding amount USD $200
  • Client fund protected in segregated accounts
  • Forex and indices
  • Liquidity providers include HSBC, Credit Suisse, citi, Nomura, GSA Capital, JP Morgan and others

Sign up

Please click below to set up an account with IC Markets.

IC Markets Sign up

I went for a cTrader account in GBP when I set up an account earlier to try it out and would suggest that you do the same.

I hope this helps. ESMA have over reacted in my opinion and whilst increasing margin requirements is a good move to protect retail traders, the proposed increases are a knee jerk, sledgehammer to crack a nut, approach.