Trading CFDs carries considerable risk of capital loss. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.

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No more high leverage in Europe

June 10, 2018

The new ESMA measures will be adopted this summer. Binary options are banned and for CFDs and forex new strict measures will apply such as a limit on the leverage.

The ban on the marketing and sale of binary options to retail investors will start to apply from 2 July 2018.

The new ESMA rules for CFDs and forex will start to apply from 1 August 2018. These new measures have been designed to protect investors. There will be a drastic limit on the amount of leverage for retail investors. At the same time there will be a 'negative balance protection' for all retail traders.

All retail traders of EU regulated brokers will benefit from this negative balance protection. Any losses on positions can never be greater than the money that's on the trader's account. So the trader can not end up in debt because the account cannot go below zero. This is certainly a positive element for new traders who haven't got experience with the leverage effect.

Limiting leverage

For trading in large currency pairs, a margin of 3.33% is now required. For large indices this is 5%, for commodities 10%, for individual shares 20% and for cryptocurrency 50%.

IG provides the following example to clarify the impact on retail investors: "For one standard contract EUR / USD at the current market price, the margin requirement is currently $616. Under the new measures the margin requirement will be $4102.56."

Retail traders will therefore have to deposit more money into their account if they want to continue trading in the same way.

Still looking for a high leverage or binary options?

There are two ways to avoid being impacted by the strict ESMA rules.

A first possibility is to become a professional client. Given the strict conditions, this is only possible for a small group of retail traders. For example, you have to prove that you have at least € 500,000 available and you must have traded at least 10 large positions per quarter. When you qualify for a professional client, you will again be able to use a much higher leverage, but you will ofcourse lose the negative balance protection.

A second option is to find another broker that is not regulated in Europe. However, be very careful for malicious offshore brokers! First do a decent investigation into the broker. One tip is to choose a broker that is regulated in another reliable country, such as IC Markets or FP Markets that fall under the supervision of the Australian authorities.

Instead of a traditional broker, you can also consider working with a broker that uses a blockchain model. The blockchain in this case provides the necessary confidence so that a regulator is not necessary. All possible transactions are recorded in the smart contracts, so you are sure that the broker can not steal your money. A good example is SPECTRE, which isn't even a broker but only operates a platform. With this platform you can choose to trade directly from your ethereum wallet, so that you never have to deposit or withdraw money from Spectre. Profits or losses are automatically added or deducted from your ethereum wallet. For the time being, only binary options or smart options are possible, but later smart cfds will also be launched. For those unfamiliar with crypto coins, Spectre will soon launch the option to trade in euros or dollars.

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