ESMA to renew restriction on CFDs for a further three months

Chris Hamblin

4 October 2018

One of ESMA's 'investor protection' worries relates to the offer of CFDs to retail clients. It has therefore agreed to renew the restriction - its first ever example of 'product intervention' - on 1 November.
The renewal was agreed by ESMA’s Board of Supervisors on 26 September and includes renewing the following.

'Leverage limits' on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying assets: 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; and 2:1 for crypto-currencies.
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.
Negative balance protection on a per-account basis. This will impose an overall guaranteed limit on the losses of retail clients.
A restriction on the incentives offered to trade CFDs.
A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.