Who is ESMA

ESMA is an independent EU Authority that contributes to safeguarding the stability of the European Union’s financial system by enhancing the protection of investors and promoting stable and orderly financial markets.

What are the ESMA new measures

ESMA announced new regulatory changes for CFD brokers designed to provide greater protections to retail clients. These changes will go into effect on 1 August 2018 and will have a direct effect on all retail clients trading with a broker regulated in the European Union and includes the following:

Retail Clients

1. Leverage limits which vary according to the volatility of the underlying:

  • 30:1 for major currency pairs;
  • 20:1 for non-major currency pairs, gold and major indices;
  • 10:1 for commodities other than gold and non-major equity indices;
  • 5:1 for individual equities and other reference values;

2. A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which providers are required to close out one or more retail client’s open CFDs;

3. Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses.

4. A restriction on the incentives offered to trade CFDs; and

5. A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

Professional Clients

1. Leverage limits:

  • 400:1 for major currency pairs
  • 400:1 for non-major currency pairs, gold* (1:333.3*) and major indices
  • 400:1 for commodities other than gold and non-major equity indices
  • 400:1 for individual equities and other reference values

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.