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A leverage of 1: 5 is quite a realistic scenario. But you can say "NO"
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A leverage of 1: 5 is quite a realistic scenario. But you can say "NO"

created Paweł MosionekJanuary 25 2018

1 leverage: 5 quite real

ESMA, the EU regulatory body, has proposed changes that radically change the trading conditions on the forex market and CFDs. The document contains various recommendations. One of the most important changes is limitation of financial leverage for retail traders since 1: 30 do 1: 5 depending on the underlying instrument (we've announced this month ago in this article). Unofficially, however, we hear that the proposed leverage of 1: 5 is an extremely realistic scenario for all CFD instruments, in other words those offered by Forex brokers.

The second significant change proposed is Mandatory Stop-Out on each item to 50%. It means that if the loss in a given position reaches 50% of the initial margin for a given item, it will be closed.

In other words, by opening the position for which the required margin is PLN 1000, we will be able to record a loss of no more than PLN 500 (the capital held on the account will not matter).

Table showing the scale of security increase

Instrument Current level of security deposit The level of deposit proposed by ESMA
EUR / USD - 1 lot € 1,000 / approx. 4150 PLN € 3,333 / approx. 13 831 PLN
DE30 - 1st flight € 1,100 / approx. 4565 PLN € 11,000 / approx. 45 650 PLN
Gold - 1 lot € 3,365 / approx. 13 964 PLN € 33,650 / approx. 139 647 PLN

Your vote matters - until February 5th

ESMA is currently conducting an environmental consultation, which will last until February 5. This is the time when each of us can express our opinion on the proposed changes. IN this place you will find the full text of the ESMA document. Below are the instructions on how you can give your opinion to the European regulator.

How to express your opinion

  1. Download the form.
  2. Answer the questions in the form (only in English - you can use the translator). Questions translated into Polish can be found at the end of this article and in the file itself.
  3. You do not have to answer every question.
  4. Save and submit the form and enter your personal details on the ESMA website from the following link (click RESPOND at position "Call for Evidence - Potential product intervention measures on contracts for differences and binary options to retail clients".

Every opinion counts and you can influence the trading conditions that will apply in the near future!

ESMA's questions in Polish

A: Do you think that ESMA has properly identified the instruments in terms of their possible sizes (paragraph 3 and 5 above)?

B: What impact can your business have on the introduction of leverage limits in line with the principles described above (this includes only retail customers)? Please describe and explain any one-off or continuous cost or benefit.

C: How can the introduction of the margin close-out principle be based on per-position (this includes only retail clients)? Please describe and explain any one-off or continuous cost or benefit.

D: What impact your business may have in introducing protection against a negative balance on a per-account basis (this includes only retail clients)? Please describe and explain any one-off or continuous cost or benefit.

E: What impact the tightening in terms of encouraging trading may have on your business (this includes only retail customers)? Please describe and explain any one-off or continuous cost or benefit.

F: What impact a standardized risk warning may have on your business (this includes only retail customers)? Please describe and explain any one-off or continuous cost or benefit. 

G: Please provide a record of the proportion of retail customers who use these products for hedging purposes and indicate how the suggested measures will affect them.

H: What impact can your business have on banning binary options from retail customers? Please describe and explain any one-off or continuous cost or benefit.

I: In your opinion, what impact does the anticipated funds have on retail customers?

J: Do you believe that specific restrictions on CFDs should be introduced on cryptocurrencies? In particular, what impact on business operations and / or other expected additional benefits for retail customers may be affected by the introduction of a leverage limit at 5 level: 1 for such CFD? How do you compare such impact to the existence of alternative leverage limits like 2: 1 or 1: 1 or prohibitions on the sale, marketing or distribution of such CFDs? Please describe and explain any one-off or continuous cost or benefit.

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About the Author
Paweł Mosionek
An active trader on the Forex market since 2006. Editor of the Forex Nawigator portal and editor-in-chief and co-creator of the ForexClub.pl website. Speaker at the "Focus on Forex" conference at the Warsaw School of Economics, "NetVision" at the Gdańsk University of Technology and "Financial Intelligence" at the University of Gdańsk. Twice winner of "Junior Trader" - investment game for students organized by DM XTB. Addicted to travel, motorbikes and parachuting.
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