Darwinex Elaborates on a Major Issue Facing FCA-Regulated Brokers

In a blog post which is addressed to the Independent Trader Movement, which is how Darwinex calls the community of traders using the brokerage’s services to trade the markets, the senior leadership of the company shares some industry-wide important thoughts.

Since the publication of the ESMA’s message to brokers about the upcoming changes to the regulatory framework in the EU, FCA-regulated brokers have been informed by the watchdog that they might have to seek a more expensive license.

The €730K license will ensure that brokers will have enough capital to secure Negative Balance Negative Balance In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader place In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader place Read this Term protection to their clients, a requirement for all brokers operating with clients in the EU. The permit allows companies which hold the license to become Market Makers Market Makers Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v Read this Term, but as Darwinex elaborates, this is not what the company intends to do.

Permission vs Reality

The founding and management team of Darwinex explains in the letter to clients that while the company will get the permission to run a book, it doesn’t intend to start doing just that. The firm which is focused on building a strong community of traders that are looking for the best performers across the platform is applying for the full €730K license but doesn’t intend to follow through on that promise.

The company’s message is that while holding a broker-dealer license give the firm permission to “make a market”, there is no obligation to do so.

“We will continue to route 100% of the flow directly to the market, the way we have for every order to date. We will continue disrupting over-the-counter (OTC) trading, and the new license is a stepping stone in that direction.”

As we can be certain that will be the case with yet some other companies from the industry which are operating on an STP basis, the post-ESMA era of the foreign exchange and CFDs trading industry is likely to be materially different from the current status quo.

Darwinex Lobbied for Exchange-Traded CFDs

Elaborating in its post, Darwinex shared with the community that it has lobbied with the ESMA during the consultation period to move CFD trading on exchanges. What would that essentially mean would by that all CFDs would have to become executed on a DMA (direct market access) basis, or be traded and cleared via a centralized exchange.

The company has shared its opinion on the side effects of the new regulatory framework which ESMA has constructed. While some brokers who are market makers are acting honestly, others are traditionally looking for different ways to attract more losing traders to balance their books and to generate profits.

Shareholders of Darwinex explicitly state that they do not intend to ever operate as a market maker. The message to clients appears loud and clear, the firm will remain committed to STP execution in order to retain the members of its community. The company is one of the few in the industry which has gone an extra mile to educate traders and provide them with adequate information on what are the key aspects to avoid losing money on the market.