About a year ago, the EU saw a major change in rules regarding the trade of CFD and FX products. The regulator, ESMA, claimed that brokers’ clients need to be protected. As a result, the brokers’ EU-based retail clients lost their ability to reach high leverage. The maximum leverage since the new regulations has been 30:1, even when it comes to the major FX pairs.

This was not the worst of it, however, and rules in regards to commodities, indices, and other CFDs saw even more changes. Now, about a year has passed, and many have started to wonder whether the changes from a year ago had any real impact? Any real positive impact?

Risk-hungry retail clients moved offshore

When it comes to the profitability rates of retail clients, there are a few conclusions that can be drawn. For example, the percentage of losing accounts has dropped, although it is likely that this comes as a consequence of a booming offshore industry, rather than stricter margin requirements. The results are very diverse and different from broker to broker.

Some brokers retained clients who become more profitable than a year ago. Many did not. And then, there are the extreme cases, such as one particular broker that stated on its page that it only has clients that lose money. Of course, the results may be impacted by a number of factors, such as brokers not updating their data every month.

But, while the quality of the data is not 100% confirmed, the findings from the data are extremely interesting. 17 out of 35 brokers have seen a significant improvement, which is just short of 50%. Around 9 of them did not report any changes, and nine others have reported that their clients have experienced worse outcomes following the last year’s change of rules.

On average, the number of profitable clients grew from 23.5% in July 2018, to 25.1% in July 2019. Obviously, the change is not that big, especially considering how drastic the changes to the policy were. Traders should have seen a lot more improvements, which is what ESMA had claimed would happen. In fact, they claimed that high leverage is the main reason why people are losing money.

However, a year after making regulatory changes, the results indicate that this is not so. Quite the contrary, actually, considering how many clients moved away from the EU to other jurisdictions. Those who wanted to take greater risks have left, and only about one half of those who remained saw only a small amount of improvement.

A different solution

As mentioned, the data is not perfect, and it was even distorted by several aspects. Another thing that undoubtedly had an impact is the recategorization of some clients to professionals. It is not currently known whether they experienced profits or losses, but it is highly likely that they are on the losing side.

This is clearly not at all what ESMA was promising, which is why national regulators are planning to take over, starting from August 1st. They have different approaches in mind when it comes to the risk appetite of the clients. When it comes to Western-European financial regulators, their approach is relatively universal. They decided to make ESMA’s temporary measures permanent.

However, countries such as Poland, Cyprus, and some others propose a different approach to the issue. Their regulators believe that there should be a category for experienced traders which would be allowed to use higher leverage, of up to 50:1. Meanwhile, those with little to no experience (at least, according to Cyprus regulators) should only have an available margin of up to 20:1.

Since ESMA’s solution is clearly not working, many are in favor of changing the approach, and the only certain outcome from ESMA’s measures is that many have decided to simply relocate offshore.