ESMA restrictions

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ESMA Extends CFD Restrictions for another Three Months

The European Securities and Markets Authority (ESMA) has agreed to extend its restrictions on marketing, distribution or sale of Contract for Difference (CFD) agreements to retail clients to another three months. The renewed restrictions will be applicable from May 1, 2020.

ESMA moves according to anticipation

The industry was anticipating the authority to extend its CFD sale, distribution, and marketing restrictions to retail clients. The authority said that there is still a significant concern for investor protection in the CFD market because of which they have decided to renew the restrictions. The ESMA has previously renewed these restrictions on February 1, 2020, and the new prohibition will follow the same terms.

The clients will continue to face leverage limits on opening a position from 30:1 to 2:1. However, it will depend on the volatility of the underlying asset. Overall, the leverage cap will be limited to 2x for digital currencies and 30x for major fiat currency pairs. Non-major currency pairs, gold, and major indices will stick to 20x leverage, commodities other than gold and non-major equity indices will be limited to 10x and individual equities and other reference values will be limited to 5x leverage.

What should users expect?

The rules will be similar to the February 1 extension which means that there will be restrictions on margin closeout rule on a per account basis. This will help in standardizing the percentage of margin, which comes at a 50% of the minimum required margin) at which providers will be required to close out one or more open CFDs of the retail client.

There will be no protection for negative balance on a per account basis. Additionally, there will be a restriction on incentives offered to trade CFDs. Brokerages offering contracts for difference will also have to provide a standardized risk warning to the investors. The warning must include the percentage of losses on a CFD provider’s retail investor accounts.

Several EU member states are working aggressively towards investor protection measures according to the ESMA’s measures. France is one of the latest examples of this practice. The French financial markets authority AMF announced the opening of consultation regarding restrictions on CFD offerings. It is also considering banning binary options to non-professional investors.

The EU states are working proactively to put more investor protection measures in place along the lines of the ESMA measures. The French guidelines are similar to the ESMA rules but are designed to provide more stringent protections at the national level.

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New ESMA Measures Impose 2:1 Restriction on Leverage for Crypto CFDs

The European Securities and Markets Authority (ESMA) has announced that it will impose restrictions on the leverage offered for contracts-for-difference (CFDs) and binary options offered to European retail investors. Under the new measures, the leverage offered on cryptocurrency CFDs will be limited to no more than 2:1.

European Securities Regulator Imposes Restrictions on Leverage Offered by CFD Providers

ESMA has agreed on what it describes as “temporary product intervention measures on the provision of [CFDs] and binary options to retail investors in the European Union (EU).”

The new measures will see restrictions on the leverage offered on cryptocurrency CFDs to no more than 2:1. The agreements will also mandate that traders provide an initial margin of “50% of the notional value of the CFD when the underlying [asset] is a cryptocurrency” – more than twice the initial margin required of any other CFD.

New Measures See Harshest Rules Imposed on Cryptocurrency CFDs

ESMA has stated that cryptocurrencies CFDs states that “CFDs with cryptocurrencies as an underlying raise separate and significant concerns as CFDs on other underlying” assets.

The regulator stated that “Cryptocurrencies are a relatively immature asset class that pose major risks for investors.” ESMA expressed “concerns about the integrity of the price formation process in underlying cryptocurrency markets,” arguing that such “makes it inherently difficult for retail clients to value these products.”

ESMA concluded that “Due to the specific characteristics of cryptocurrencies as an asset class the market for financial instruments providing exposure to cryptocurrencies, such as CFDs, will be closely monitored.” Based on its findings, ESMA “will assess whether stricter measures are required.”

New Rules to be Formalised in “Coming Weeks”

The measures will also see restrictions of 30:1 placed on “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;” and 5:1 on “individual equities and other reference values.”

ESMA states that it “intends to adopt these measures in the official languages of the EU in the coming weeks.”

What is your response to the new restriction on the leverage offered by European CFD providers? Share your thoughts in the comments section below!

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European Traders – new ESMA regulations!

Does ESMA Regulations have impact on you and what your actions wi
Yes, the have impact but I’ll keep my broker. 21 Votes 15%
Yes, the have impact and I’ll look for new broker 76 Votes 55%
Not sure yet 12 Votes 9%
No impact on my trade capabilities 12 Votes 9%
I have non EU Broker so don’t care 16 Votes
  • Post # 1
  • Quote
  • First Post : Jun 24, 2020 12:00pm Jun 24, 2020 12:00pm

I would like to ask all EU traders on their opinion and views on incoming Leverage and Margin restrictions by ESMA.

I personally think that this new rules will have negative impact on Retail Traders and are created to protect brokers, not us. however EU brokers will lose a lot or retail clients to overseas and unregulated counterparts if solution is not found.

What’s your Plan B?

  • Post # 2
  • Quote
  • Jun 24, 2020 2:37pm Jun 24, 2020 2:37pm

Even I currently use a leverage less than 20, the incoming Leverage and Margin restrictions by ESMA will have a significant impact on the Margin used so I will decrease my leverage even more in order to keep my system properly working.

On the other hand, I think the incoming Leverage and Margin restrictions by ESMA are against the retail traders, while they are applied even on profitable accounts.

PS. From Oanda received by e-mail :

Impact to existing retail clients

If you have open positions at market close on 27 July 2020, any sub-accounts on which you have open positions will be marked as ‘closing trade(s) only’ to limit the impact on your existing trading. This means that although you can move funds into and out of the account and close open positions, you will not be able to open any new positions. Leverage rates for these pre-existing positions will remain at the level at which they stood when you executed the opening trades. Consequently, in order to open any new positions you will be required to open a new sub-account(s) that will reflect the above stated leverage limits.

If you do not have any open positions at market close on 27 July 2020, we will update your existing sub-account(s) to default to the above stated leverage limits. If you were previously trading using leverage lower than the new ESMA limits, on 29 July 2020 you can lower your leverage through your account management portal in the Manage Funds section.

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