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New CFD Regulation and Its Impact on Traders

The European Securities and Markets Authorities (ESMA) had adopted a new series of rules which affect retail CFD traders, starting from August 1st, 2018. According to the latest measures, online brokers need to offer different trading conditions to inexperienced traders.

This happens due to various statistics that point out towards a high level of unprofitability among retail traders, a level sometimes above 85%. Because of that, a new set of rules had to be adopted and the ESMA, under the Article 40 of the Markets in Financial Instruments, acted accordingly.

What measures are now imposed on online traders?

The first and the most important measure is related to the leverage limit. Starting from August 1st, the following terms apply for retail traders:

  • 30:1 leverage for major currency pairs;
  • 20:1 leverage for minor currency pairs, precious metals, and indices;
  • 10:1 leverage for commodities and non-major equity indices;
  • 5:1 leverage for individual equities;
  • 2:1 leverage for cryptocurrencies.

Another measure standardizes the stop out level at 50% of the minimum required margin and a negative balance protection on a per account basis.

What all these measures mean is that it will be much harder for beginners to trade higher volumes in the market, but still, brokers are able to offer better trading conditions for experienced traders that manage to meet a certain set of criteria.

Professional traders unaffected

Because of the above-mentioned new regulation, all online brokers had been forced to change their offer, so now each one of them has a special set of features only for those traders who qualify as professionals.

Programs like the Elective Professional Client Program enable traders to have access to the same trading conditions prior to the new regulation.

online trading

In order to qualify as professionals, traders will need to meet some terms, which usually are related to the past trading experience (usually, over a year of experience is required) and also a certain trading volume.

Are there any benefits?

There a very old axiom in the world of trading called the 90/90/90 axiom. It basically says that 90% of all the beginning traders lose 90% of their initial investment in their first 90 days of trading. It really happens most of the time, since each trader experiences losses at a certain point in time.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.47% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.


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