On 27 March 2019, the European Securities and Markets Authority (ESMA) announced that it was renewing its restrictions on the marketing, distribution or sale of contracts for differences (CFDs) to retail clients from 1 May 2019 (following the publication of the restriction in the Official Journal of the EU), for a further 3-month period. The restrictions have been in place since 1 August 2018.
The renewal was agreed by ESMA’s Board of Supervisors on 26 March 2019 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:
- 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;
- a margin close out rule on a per account basis. This standardises 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 provides an overall guaranteed limit on retail client losses;
- a restriction on the incentives offered to trade CFDs; and
- a standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.