Good morning,
Welcome to a new world. The first thing I saw this morning when I opened my screen was an advert for Plus 500, where they suggested you trade Bitcoin, and then after that promotional sentence, it said: "80% lose".
I imagine these warnings will be ignored by people just like smokers fade out the images on the cigarette packages.
Still, looking at the screen this morning, I have 2 broker platforms side by side. One side has a broker where I have opted for PRO status, and next to it a broker where I haven't gotten around to apply for PRO status.
I bring up the Dow ticket. I input the average stake size for UK clients, which I have been told is around £7.50. To make it easier, I input £10.
Dow margin on PRO platform = £1,250
Dow margin on NON PRO platform = £12,500
So in answer to your question Sonicscooter, there is a good chance that people don't have an extra £11,250 spare capital available to deposit on their trading account.
I have written 3 articles about ESMA on my website
www.tradertom.com. I have fought ESMA as a citizen by argument and reason. I supported IG's initiative on REPLYTOESMA.
I argued that Binary should not tarnish everything else, including spread betting and CFD trading. I am glad to see Binary gone, but I doubt you can simply remove an industry. Did the alcohol industry disappear during the Prohibition? No, it just moved across the border. This is in my mind what ESMA has achieved. They have exported the problem elsewhere, but it will still rear its ugly head.
ESMA could have achieved a sensible outcome by demanding a Negative Balance Protection from all brokers, on par with what BAFIN in Germany had done in 2017. It would have achieved a stop to the disaster stories we saw during the "Flash Crash" and the "2015 Swiss National Bank Announcement".
A typical UK spread betting account is about £2500. People will wake up this morning and realize there is not much fun in trading FTSE and having to deposit £380 for every pound staked. They will, if they can, deposit more money on their account, but I don't think this will apply to the majority.
I run a private signal channel on Telegram, where I tell people what I buy and short and when. There are currently 496 members in there. I should just add that I am not charging for it. This is not an advert in disguise.
I ran one of those SurveyMonkey surveys where I asked a question about the new ESMA rules. It was a pretty simple survey, and all I wanted was to get a feel for what people would do when faced with the new ESMA rules.
Question 1: Can you, and if you can, will you apply for Pro Status?
15% replied they could and would.
Question 2: Assuming you can't successfully apply for Pro Status, will you deposit more funds on your account?
37% said they would deposit more funds on their trading accounts.
Question 3: Assuming you can't successfully apply for Pro Status, will you seek an account outside the EU?
74% responded that they would seek an account outside the EU.
If those numbers are correct, and I will be the first to argue that the sample space is small, then what ESMA has done has backfired. ESMA intended to create a safer environment for the private investor. Instead they have thrown retail traders into the hands of foreign CFD providers.
Of course just because a CFD provider is based outside the EU does not make him the big bad wolf. However, when it comes to investor protection, we are privileged in the EU. My articles make an argument for Australia because of the bank protection guarantees as well as an Ombudsman, as opposed to selecting a broker on say Cayman Islands, where I have no protection.
So today is D day. For some it is business as usual, while for others, it is a day of wondering what to do. I have been in the industry since 2001. I dont agree with the CEO of IG Markets, who said that the industry brought this on by itself. We didn't. We got more competitive.
In 2001 the spread in the DAX was 8 points. The spread on the quarterly Dow was 16. You barely had charts, let alone online platforms. We have innovated ourselves into the point where people arriving to the trading industry do not have to worry about charting packages costing 300 dollars a month, because the brokers provide it for free. They don't have to worry about news flow because most brokers provide it for free.
Trading is really not an easy game to crack. You need your A-game every day. It is a job or a serious hobby. All the brokers have done is make it easy for you to implement your game. Would you rather trade DAX at a 1-point spread or a 4-point spread?
I don't work in the industry anymore, and I haven't done since 2009, but I don't see how this was the industry's fault. The advertising standards made sure the adverts were kept in line. The Ombudsman handled complaints. The brokers made sure they kept in line. The odd fine here and there made sure the FCA showed their teeth from time to time. So what happened? Was it too much margin? OK, fine, reduce it to 100 to 1 and keep it there.
ESMA has committed a grave error, and they have not learned from history. We may not have a similar situation apart from Japan's ban on margin a few years ago, but we have from so many other avenues in life. When you create a void, it will be filled by someone.
Tom
