ESMA lowers lever to 1: 30 for major currency pairs

Leverage limited to 1:30 for major currency pairs - this was the decision made by ESMA, i.e. your European financial market regulator. There are more changes. All CFD instruments were affected by the leverage reduction, to a greater extent than majors, and in addition retail investors will lose access to binary options instruments.

ESMA against traders' opinions

The new rules impose the following requirements on brokers regarding the marketing, distribution or sale of CFDs to retail customers:

• Offering maximum leverage in 1: 30 and 2: 1, which will also depend on the volatility of the underlying instrument,
• 1: 30 for major currency pairs,
• 1: 20 for non-major currency pairs, gold and major stock market indices,
• 1: 10 for non-gold goods and major stock market indices,
• 1: 5 for individual equity and other instruments not listed,
• 1: 2 for cryptocurrencies,
• introduction of mandatory protection against the creation of a negative balance on each account,
• unification of standards regarding risk warnings,
• uniform rules on the "stop-out" mechanism for each account.

The introduced changes are consistent with the prototype, which was presented by the EU in December 2017. This, unfortunately, means a failure of traders in an attempt to postpone their own sentence regarding the imposition of further restrictions that traders have been afraid of for a long time.

ESMA justifies its decision with the desire to fight for the security of retail investors, who largely lose their money by investing in highly leveraged instruments.

Steven Maijoor, Chair of ESMA:

"Analysis of the competent national authorities regarding CFD transactions in different jurisdictionsEU shows that 74-89% of retail accounts usually lose money on their owninvestments, and average losses per customer from 1 600 euros to 29 000 euros. In analysisthe national competent authorities regarding binary options have also shown permanent losses in the accounts of retail clients. These measures were agreed by the ESMA Board of Supervisors on 23 March 2018. "

At the moment, the document itself does not explain many issues, such as, for example, it does not define what the main stock exchange index is. It is also not known if the new regulations will apply to EU citizens using brokers outside of its territory, eg Australia or Switzerland. These doubts will probably be explained in the next month.

When the changes come into effect

According to the published document, this is a temporary solution that will enter into force for three months, but only after it has been translated into all official languages ​​in the European Union. Only after that will it have to be published in the Journal of Laws. And from that date, two months will be counted after which the reduction in leverage will actually take effect. Despite the "temporary" nature, the pan-European regulator probably does not foresee resignation from the decision made, but only allows the possibility of extending the transitional period.

The full text of the ESMA document is available here.