Making Sense Of New EU Bonus Rules
New Rules Are Aimed At Stamping Out Misconduct
The ESMA announced last year that it would terminate bonuses and the market was non-plussed. On the one hand bonuses are a real problem when it comes to fraud, scams and your ability to withdraw your deposited money and profits. In this light their announcement was a good thing but perhaps went a bit to far, at least in the minds of traders and brokers alike. Brokers like to use bonuses as a means of attracting and retaining clients, we traders like bonuses because it’s free money for trading, and we were going to trade anyway so why not take a bonus? After a bit of uproar the agency came back and clarified their policy and let me tell you, it is a lot better than you might think.
- The ESMA along with the MiFID and local regulators have implemented a ban on all bonuses tied to trading volume. This does not mean there are no bonuses, incentives or rewards programs just no more cash match bonuses that tie up deposits and prevent withdrawals. In response the European Binary Options Association has echoed the sentiment and included these principles in their code of conduct and financial guidelines.
The new rules as laid out by the MiFID and ESMA state that no binary option bonus can be tied to trading volume as a basis for withdrawals. This means no more of those first time deposit bonuses or any other bonus that requires you to trade a certain amount of volume to unlock your account. These bonuses are at the heart of many complaints and criticisms of the industry and do not take the clients best interests into account. The new rules will allow bonuses but they are more like a reward program for trading activity than a cash match for deposit.
There are a couple of variations but in most cases the new EU bonus works like this. Anytime you deposit money into your account or make a trade it counts as trading volume. The more trading volume you have the more “bonus” you are eligible for. The bonus money may be shown in a tally in your account but will never be added to your money until you meet the required amount of trading volume. Once you do meet the volume requirement the bonus money is put into your account and becomes immediately withdrawable. The best part is that your money is always withdrawable and is never restricted in any way. The bad part is that there is no added leverage to enhance to your profits.
Another type of bonus that is allowed under the new rules uses a deposit/bonus ratio to track what percentage of your account is a bonus, and how much is your real money. I see this types most often as a cash back or risk free trade type of bonus that you must request upon registration. What happens is this. If you ask for this bonus your first trade, up to a $1,000 for example, is covered under the risk free trade agreement. If you win you keep your money and the profit, no problem there. If you lose they give you back the amount you wagered but in bonus money. The difference is that now, instead of having your entire account tied up until you hit some impossible to achieve turnover rate, any real money left in your account is free to withdraw, as are any profits with one restriction.
The restriction is the deposit/bonus ratio. It dictates how much of your profits are based on real money and how much are based on bonus money. The amount of your profits that are based on real money are always withdrawable, the amount of profits based on the bonus aren’t withdrawable until the turnover rate is met. Here is an example;
Let’s say you have $1,000 in your account and have a bonus/return on risk free trade for $200 for a total of $1,200. Your deposit ratio $1,000/$1,200 or 83% so if you make a trade and win 83% of those profits are yours to withdraw immediately. Let’s say you trade $200 and win with a return of 81% bringing your account up to $1362. Your profits on the trade are $162, 83% of $162 is $134.46 and that is how much you can withdraw now. The remainder of the money is left in your account and becomes withdrawable once the turnover is met. Also, each time you trade and win or lose your deposit ratio is adjusted for the new total. In this example we add the profit, $162, to $1,000 and then divide that by the account total which equals 85%.
