The European Securities and Markets Authority (ESMA) has agreed on measures on the provision of contracts for differences (CFDs) and binary options to retail investors in the European Union (EU).
In accordance with MiFIR, ESMA can only introduce temporary intervention measures on a three monthly basis. Before the end of the three months, ESMA will consider the need to extend the intervention measures for a further three months.
CFDs – agreed measures
The product intervention measures ESMA has agreed under Article 40 of the Markets in Financial Instruments Regulation include:
1. 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:
· 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;
· 2:1 for cryptocurrencies;
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.
Are those caps per pair or the whole account? For example I open a trade on EU with a leverage 1:10. I have 1:20 left for the whole account or is that left for EU and I can still open trades on other pairs?
Only a professional traders can stay a leverage for example 1: 500
These are the requirements for example broker Admiral Markets
I confirm that I meet the following criteria (mark all that apply): - I have traded leveraged products with Admiral Markets and/or with other service providers at an average frequency of 10 orders per quarter over the previous four (4) quarters with the notional value of my orders typically exceeding 20,000 EUR. - The size of my financial instrument portfolio, defined as including cash deposits and financial instruments exceeds EUR 500, 000 (with Admiral Markets and other service providers); - I work or have worked in the financial sector for at least one year in a professional position, which requires knowledge of CFD and Forex trading (e.g. banking, investment sector or independent professional experience).
This issue has been discussed surprisingly little. On some other threads there has been some remarks, like that one concerning the cryptocurrencies trading.
The restriction on leverage does NOT have any significant effect for most of the traders - at least it shouldn't have. That is because the spread is so high in most of the brokers, it renders trading in lower time frames useless and eats your profits. As a rule of thumb I set 'show ask line' on in MT4 terminal, and if the line is visible then I do't trade and execute orders in this time frame. I might close my position in a lower time frame, though.
Scalping is not profitable for high spreads. If the spread would be less than, say, 0.5 pips I could do that. That means high leverage goes in hand with low spread, and while the spread is high in most of the cases it really doesn't matter, if the leverage is restricted to 30. Of course there is the question of the definition of scalping..
This realization has cost me hundreds of bucks.. It could have cost even more!
Not everyone will be affected by these measures. ActivTrades, for example, is keeping the leverage for their professional clients' accounts up to 1:400. They also offer balance protection policy so the balance doesn't go into the negative and ensure capital up to £1,000,000.
Contacted a number of solicitors regarding planned changes as I feel they are discriminatory and unfair. I also believe these new regulations are in breach of Equal Opportunities:
Equal opportunity arises from the similar treatment of all people, unhampered by artificial barriers or prejudices or preferences, except when particular distinctions can be explicitly justified. According to this often complex and contested concept, the aim is that important jobs should go to those 'most qualified' – persons most likely to perform ably in a given task – and not go to persons for reasons deemed arbitrary or irrelevant, such as circumstances of birth, upbringing, having well-connected relatives or friends, religion, sex, ethnicity, race, caste, or involuntary personal attributes such as disability, age, gender identity, or sexual orientation. Chances for advancement should be open to everybody interested, such that they have 'an equal chance to compete within the framework of goals and the structure of rules established'. The idea is to remove arbitrariness from the selection process and base it on some 'pre-agreed basis of fairness, with the assessment process being related to the type of position' and emphasizing procedural and legal means. Individuals should succeed or fail based on their own efforts and not extraneous circumstances such as having well-connected parents. It is opposed to nepotism and plays a role in whether a social structure is seen as legitimate. The concept is applicable in areas of public life in which benefits are earned and received such as employment and education, although it can apply to many other areas as well. Equal opportunity is central to the concept of meritocracy.
Marketplace considerations Equal opportunity has been described as a fundamental basic notion in business and commerce and described by economist Adam Smith as a basic economic precept. There has been research suggesting that 'competitive markets will tend to drive out such discrimination' since employers or institutions which hire based on arbitrary criteria will be weaker as a result and not perform as well as firms which embrace equality of opportunity. Firms competing for overseas contracts have sometimes argued in the press for equal chances during the bidding process, such as when American oil corporations wanted equal shots at developing oil fields in Sumatra; and firms, seeing how fairness is beneficial while competing for contracts, can apply the lesson to other areas such as internal hiring and promotion decisions. A report in USA Today suggested that the goal of equal opportunity was 'being achieved throughout most of the business and government labor markets because major employers pay based on potential and actual productivity'. Fair opportunity practices include measures taken by an organization to ensure fairness in the employment process. A basic definition of equality is the idea of equal treatment and respect. In job advertisements and descriptions, the fact that the employer is an equal opportunity employer is sometimes indicated by the abbreviations EOE or MFDV, which stands for Minority, Female, Disabled, Veteran. Analyst Ross Douthat in The New York Times suggested that equality of opportunity depends on a rising economy which brings new chances for upward mobility and he suggested that greater equality of opportunity is more easily achieved during 'times of plenty'. Efforts to achieve equal opportunity can rise and recede, sometimes as a result of economic conditions or political choices.
HIGH RISK WARNING: Foreign exchange trading carries a high level of risk that may not be suitable for all investors.
Leverage creates additional risk and loss exposure. Before you decide to trade foreign exchange, carefully consider your investment objectives, experience level, and risk tolerance.
You could lose some or all of your initial investment. Do not invest money that you cannot afford to lose. Educate yourself on the risks associated with foreign exchange trading, and seek advice from an independent financial or tax advisor if you have any questions.
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