I'd like to suggest that anyone who was considering doing nothing about this actually respond to the IG email.
I know it's unlikely, but if the overall response is big enough there's a tiny chance our views will actually be considered before they are rejected, instead of our compliance being automatically assumed.
If you don't put up a fight, you've already lost.
Here's a draft of what I'll likely be posting.
ESMA Leverage Proposals.
Whilst I can see and understand what ESMA wishes to achieve, it is my view that the proposals as they currently stand will not have the intended effect.
The intention is to prevent retail clients from losing money by raising the margin requirements, reducing the amount of leverage available and thus reduce the maximum potential loss incurred on any individual trade.
However, it is my contention that people do not lose money principally because of the amount of money involved, rather that people lose money by making the wrong investment decision or simply through bad trading.
Under the current system a client may place 10 trades simultaneously and lose money on all 10. Under the new proposals - with higher margin requirements - the same client could perhaps instead make 10 trades, one after the other, and still lose money on all 10. By making the same bad decisions.
All that the proposals will do is increase the timeframe for the client to make 10 losing trades. The same amount of money will be lost overall. Perhaps even more money will be lost, as the increased timeframe will allow the client more opportunity to add additional monies to their account.
To improve trading and decision making, in addition to offering demo-accounts, IG Index offer many webpages, videos and live webcasts to enable traders to educate themselves. This is to be applauded and encouraged.
Is it the intention of ESMA to restrict professional trading activities solely to those who work for investment banks etc? If 'Joe the Plumber' is not allowed to trade, Joe will never become a successful trader.
Nor is the distinction between retail and professional trader particularly helpful.
To gain classification as 'professional' IG stipulate that 2 of the following 3 conditions be met:
1) a minimum number of trades;
2) a minimum net worth;
3) holding professional qualifications.
When Joe The Plumber first becomes interested in trading he will obviously have no experience and fail point 1). He is unlikely to be worth over 500,000 Euro and will fail point 2). Joe is even less likely to hold professional investing qualifications and will fail point 3).
Given that Joe will almost automatically fail all 3 points, how is raising the barrier to entry going to assist Joe in becomming a better trader (and perhaps attain 'professional' status, or at least pass point 2)?
Additionally, surely it is up to the client to decide how to spend their own money, and how much money the client wishes to spend? Many people spreadbet for entertainment purposes and not wealth creation.
The ESMA proposals will severely restrict Joe's freedoms of choice and serve only to inhibit his wealth-creating abilities. Or possibly even persuade Joe to conduct his activities in other jurisdictions.
Many people consider spreadbetting to be another form of entertainment and/or gambling, however running a spreadbetting account as an alternative to a traditional stockbroking account need not be a gamble.
In the interests of fairness, these proposals should be extended to include other areas that are a pure gamble, ie sports betting, casinos, lotteries, bingo etc.
Whatever next - a statement of net worth to be provided before purchasing a lottery-ticket perhaps?
In my view, the goals of ESMA would be better directed if their attentions were focussed more towards other jurisdictions where existing regulatory standards are lax and open to abuse by platform providers. Perhaps ESMA could even assist a prosecution occasionally. I am of course thinking of places such as Cypress, Malta etc.
I would not be surprised to learn that more people lose more money through outright fraud than from making their own poor investment decisions.
This is of course really more about bureaucrats being seen to be doing something rather than actually doing anything effective.
It's much easier for them if they can dream up some more regulations for other people to adhere to instead of doing what they, the bureaucrats, already have the power to do.