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New ESMA measures for retail traders

In March 2018, the European Securities and Markets Authority (ESMA) announced having agreed on a range of measures intended to harmonize EU-wide regulation and to provide better protection to retail clients trading leveraged products, like CFDs. The new measures will take effect from 30 July 2018.

ESMA’s new rules will only affect Retail Clients. If you are classified as a Professional Client then these rules will not apply to you. Professional traders (or Professional clients) meet two of the three following criteria: have carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters; have a financial portfolio exceeding EUR 500,000; and have worked in the financial sector for at least one year in a professional position, which requires knowledge of the products to be traded.

Read the full ESMA statement here

The measures apply to all retail clients contracted through EU firms, regardless of where the client is domiciled.

Measures in detail

Leverage caps

Leverage limits apply on opening a new position and vary according to the volatility of the underlying asset. Initial margin requirements will increase on CFD and FX products, meaning the amount of margin collateral required to open a new position will be higher.

Maintenance margin will be introduced and represents the minimum amount of margin collateral that must be held on account to maintain an open position. Maintenance margin will be used to calculate the margin utilisation.

Please note that from 30 July, the new ESMA initial margin rates will apply on the entire margin portfolio when opening a new position, and the new maintenance margin rates will also apply on the entire margin portfolio, including all existing open positions.

As an example, the initial margin requirement on non-major FX pairs will go from our current 2% margin rate (50:1 leverage) to 5% (20:1).

FX (Majors) 1.5% 3.33% 1.66%
FX (Minors 2.0% 5.0% 2.5%
Index (Majors) 2.5% 5.0% 2.5%
Index (Minors) 3.0% 10.0% 5.0%
Gold 3.0% 5.0% 2.5%
Commodity 2.0% 10.0% 5.0%
Equity 10.0% 20.0% 10.0%

Margin close out

The margin rate required to maintain an open position is referred to as maintenance margin. Maintenance margin is used to calculate the margin utilisation.

If your account breaches 100% utilisation, then automatic margin close–out will occur, meaning that orders to close positions will be placed and existing orders will be cancelled.

Negative balance protection

Negative balance protection will be applied to accounts that hold an open FX Spot or CFD position and will apply to any loss after any/all collateral on an account has been used, including cash deposits.

We will reimburse the negative cash amount once all positions held on account settle. The reimbursement will reset the account value to zero.

Restriction on incentives

Restrictions will be placed on promotions offering excessive bonuses or other incentives to attract and encourage retail investors to invest in FX/CFDs.

Harmonised Risk Warning with firm-specific performance

A standardised format for risk warnings will be introduced, where firms will have to include information on the amount of leveraged trades which resulted in positive outcomes for their clients.

Binary Options

All binary options, regardless of whether they are traded OTC or listed on a trading venue, fall within the scope of the agreed measure. and as such we will no longer be offering one-touch and no-touch options.

CEO AlgoFinance, s.r.o.

A professional, full-time FX/CFD trader with expertise in managing € multi-million assets and building networks and partnerships. Extensive international private and third sector experience and a proven track record of developing trading strategies. Key skills: currency trading and investment strategies, market research, project and program management, strategic and business planning, risk management.

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