Revealed: ESMA Brokers and Trader Success Rates 2022

In 2018, the ESMA made the European MiFID II  directive effective, which states all online derivatives trading brokers are obliged to openly show the percentage of their clients losing money.

In light of these regulations, we analysed the services and features of brokers, to understand which brokers best serve the success of traders.

According to our research, on average 71.63% of traders lose money by trading within the ESMA area.

We also investigated how ESMA-regulated brokers perform compared to brokers regulated by other entities, including those offshore, which have vastly different rules.

This table shows the percentage of traders that lost money on all the platforms we analysed. A detailed breakdown of all insights follows below.

The research

We analyzed a total of 62 brokers, 52 of which are supervised by ESMA authorities, comparing the performance of traders depending on the trading environment.

We compared the ESMA with the FCA (UK) and SCB offshore regulation (Bahamas), the only regulatory body where three forex brokers show similar patterns in losing percentage.

Our research looked at various key features that could make a difference when it comes to aiding or disfavouring a trader’s success.

Key insights of the research

Regulations and leverage

Maximum leverage has been the major change MiFID II  has applied to all ESMA brokers, with the maximum leverage now capped at 30:1. The FCA, the regulatory body for the UK, follows suit with the ESMA and applies the same limit.

In comparison, offshore brokers can instead offer whatever leverage they want, usually 200, 300, or 400:1.

Higher leverage is synonymous with higher risks and this is backed up by key statistics from our own research:

Traders have similar losing percentages when trading under the ESMA and FCA

According to our research, the difference between retail traders losing money under ESMA and FCA brokers is minimal, with a small 0.79% difference.

On average, 71.63% of retail traders lose money under ESMA, while under the FCA the percentage is only slightly lower at 70.84%.

ESMA (EU) and FCA (UK) regulations, given their common background pre-Brexit, require brokers to protect retail clients in a similar way. As a consequence, similar regulations produce similar results.

In contrast, offshore regulations generally report higher percentages, specifically 81,83%, which is a 14,2% increase.
The main difference between these regulations lies in the amount of leverage offered, whereby offshore regulations offer much higher leverage than in Europe and the UK. Traders should be educated on the fact that leverage is a double-edged sword that allows you to multiply your gains, but also your losses.

To support this, the following three brokers are all regulated under the ESMA, FCA and SCB, and the percentage differences for traders that see losses are clear.

Minimum deposit

When analysing the minimum deposit of ESMA brokers, we found the percentage difference is inversely proportional to the minimum amount of money deposited.

The lower the minimum deposit, the higher the percentage of losing clients.

There are several reasons for this:

• The less money a trader invests, the less he or she feels attached to the money deposited, which can lead the trader to be less careful and act less responsibly when making a trading decision.
• First experiences in trading present the most amount of risk, due to a lack of experience. Low minimum deposits attract first-time or beginner traders who don’t want to risk losing significant amounts of money.
• CFDs are leveraged products, and an account funded with small amounts of money can risk incurring margin calls easily even when using relatively low leverages.
• More experienced traders can open trading accounts for small amounts of money to try out new and riskier strategies in secondary accounts.

Social trading and copy trading

Social trading and copy trading services are often advertised to retail clients. We analyzed four platforms that offer copy-social trading as one of their core services.

On average across the four brokers, 64,96% of traders lose money which shows a percentage decrease of 9,31% compared to the average losses across all ESMA-regulated brokers.

Copy trading allows inexperienced traders to copy the trades of professional traders, thus decreasing the chances of losing money.

Copy trading and Social trading features can have a positive impact on trading performance.

Professional-only brokers: The case of Fibo Group

Traders in the ESMA area are classified as either retail or professional. Brokers can decide whether to accept registrations from both groups or only from professionals.

Fibo Group in Europe only accepts professional clients, and the percentage of traders who lose money with this broker is only 58%, which is a 19% decrease from the percentages of traders losing money with the 52 other brokers we analysed.

Despite professional traders having access to higher leverage, the percentages of losing traders are lower than all other brokers.

The data confirms the level of experience and decision making of a professional trader is far superior to that of a retail client, resulting in fewer losses.

Despite being offered lower leverages, on average, retail traders lose money far more frequently.

Overall data comparison

Taking into consideration that the average percentage of ESMA traders losing money stands at 71.63%, we have grouped all the loss factors analyzed below:

Takeaways of our analysis on ESMA CFD trading losses

1. Copy trading can be a good ally. According to our research, copy trading platforms reduce the chances of making a loss by 9,31%, thanks to the fact that you can follow and/or copy the trades of more experienced traders.
2. The minimum deposit is a double-edged sword. Although it allows you to start trading with low capital, and thus risk only small amounts of money if you are a novice, having a low minimum deposit can increase the chance of losing money by 10% (compared to a 500 $ minimum deposit). The causes include psychological, technical and experience factors. This doesn’t mean that novice traders should be encouraged to deposit more, simply that they should make responsible and educated trading decisions, even when trading with smaller amounts.
3. ESMA has a positive impact on traders. Traders operating with ESMA brokers tend to lose less frequently (with a decrease of 12,46%) than traders under offshore regulations. This confirms that high leverage can be a negative factor for novice traders.
4. Experience and market knowledge are key. Although the data is not sufficient to draw conclusions, with Fibo Group, professional traders lose money less frequently than the average european retail trader, with a huge 13.63% decrement.

Context and methodology

In 2018, the ESMA (European Securities and Markets Authority), the regulatory body for traders in the European Union, made the positive move to protect traders from the huge losses that can occur in the vast majority of cases.

Measures were put in place in an aid to reduce the growing concerns around the large number of retail traders that were losing money on CFDs, whereby in the EU, 74-89% of retail CFD traders were losing amounts ranging between 1600€ and 29000€.

Some of the protections for retail traders include:

• Maximum leverage up to 1:30
• Negative balance protection
• Ban on spread betting and binary options
• Ban on bonuses and promotions
• Brokers must display warnings on the risks of CFD trading

For our study, we looked at 52 brokers regulated by the ESMA and analysed them for certain factors that may affect risk including the minimum deposit and copy trading platforms. We also looked at the risk percentages of these ESMA-regulated brokers in comparison to the risk when regulated under the FCA and offshore regulatory bodies to identify whether the ESMA protections were effective or not.