What does the ESMA lower leverage really mean.

[Caseynotes]

So I have taken the second poll out of the swing vs scalp thread and reproduced the question, poll results and the answer below. 

Looking at the poll many thought that higher leverage meant higher profits but of course it's really higher position size that dictates profit/loss size, higher leverage allows the use of higher position size for any trade for a given account size but having access to higher leverage does not mean you must or even should use it.

ESMA lowered leverage pointing to the high percentage of traders who lose but leverage doesn't dictate whether a trader wins or loses - that's down to the trader's strategy and risk management. So reduced leverage just means most traders now lose slower, most will have increased their account size to compensate to some degree for the higher margin so they will also just lose more. Nearly all are forced to have more capital tied up in their broker account.

The last point (loss of available capital) is probably the most important for those who haven't moved accounts overseas or just given up altogether.

So a 79% fail rate for a startup business is horrific right. But wait, look here https://www.entrepreneur.com/article/288769 
75% of (venture backed) startups fail, and the reasons;

1. Lack of focus 2. Lack of motivation, commitment and passion 3. Too much pride, resulting in an unwillingness to see or listen 4. Taking advice from the wrong people 5. Lacking good mentorship 6. Lack of general and domain-specific business knowledge: finance, operations, and marketing 7. Raising too much money too soon.

Most of this looks very familiar does it not.

So the EU has fired wildly and missed the target but has managed to handicap everyone within range. That seems very familiar too.

Additional thoughts welcome.

 

 

[Tancredi]

" the EU has fired wildly and missed the target but has managed to handicap everyone within range":

A very good analysis of the situation, Caseynotes.

The point about the ESMA's lack of understanding is pretty much the one I made in my submission during the so-called "consultation" process.  I find it intriguing that the people with the power are not in the position that they're in because of any superior knowledge (or intellect) but rather, most likely, because the rest of us let them get away with arriving there as we cannot believe just how small-minded and intellectually limited they are until it's too late.  This is as much down to inherent psychological biases (ours and theirs) as anything that these people might take it into their heads to save us from.  Many times - and this ESMA ruling seems to be a case in point - it is they from whom we require to be saved, but the chances of any of us finding ourselves in a position to effect this sort of change are vanishingly small.  And so, in the nature of things (which is to say, according to social dynamics) we find ourselves in these absurd situations of our own making time after time after time.  Ah, well, I guess that's what makes it possible to have a market in the first place.  Traders seem to know this  Economists, politicians, and regulators?  Not so much....

[Caseynotes]

Fear for the future as the EU continues to expand it's control through an ever growing horde of  bureaucrats, have you noticed @Tancredi how now every web sight you visit no matter where they are based carrys the EU cookie policy warning.

As for economists, wasn't it Warren Buffet who said 'if you have an economist in your company you have an employee too many'.