ESMA FAQ

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Trading leveraged trading products carries a high level of risk. Losses can exceed your intial deposit.


Background

On 18 January, 2018, The European Securities and Markets Authority (“ESMA”) announced proposals regarding restrictions and limits to Retail Clients trading leveraged products. On 27th, March 2018, after analysis of the consultation results, ESMA published its updates and changes to European regulation affecting leveraged trading. These changes will be in effect from 1st August, 2018.

Who is ESMA?

ESMA is an independent EU Authority that is responsible for safeguarding the stability of the European Union's financial system, by enhancing the protection of investors and promoting stable and orderly financial markets.

Please see the following link for more information.

Why were these changes made?

The measures ESMA have announced will guarantee greater investor protection by ensuring a common minimum level of protection for retail investors. The new measures will ensure that investors cannot lose more money than they put in, restrict the use of leverage and incentives, and provide a standardised risk warning for investors. A pan-EU approach is required given the cross-border nature of these products, and ESMA’s intervention is the most appropriate and efficient tool to address this major investor protection issue.

What are the main changes?

There are three main changes that will affect the way your account is maintained; Margin Requirements, Margin Close Out and Negative Balance Protection.

Who will be affected by the changes?

These changes will apply to all Retail Clients that hold an account with Capital Index (UK) Ltd, which is a regulated financial institution within Europe.

1. Margin Requirement
Margin requirements will increase for new and existing positions. Please see below the new minimum requirements.

New Leverage New Margin Requirements
30:1 Leverage on major currency pairs 3.33% Margin
20:1 Leverage on non-major currency pairs, major Indices and Gold 5% Margin
10:1 Leverage on Commodities and non-major equity indices 10% Margin


2. Margin Close Out
A margin close out rule on a per account basis. This will standardize 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 positions.

3. Negative Balance Protection
Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client’s losses.

How will the changes affect me?

The changes to margin requirements will be applied to new and existing positions. In short, you will be required to hold larger sums of funds to maintain open positions than before.

Capital Index (UK) Ltd Margin Close Out levels are to be increased to 50%.

The new negative balance rules will mean your account is protected from losing more than you have on deposit and will prevent your account from going into negative territory. This offers more security against extreme volatility in the financial markets.

Margin Requirement examples.

Current Margin Requirements New Margin Requirements
CFD Account at 100:1 (1%) Trading EUR/USD CFD Account at 30:1 (3.33%) Trading EUR/USD
Buy 0.1 Lots (10,000 EUR) @ 1.3976 Buy 0.1 Lots (10,000 EUR) @ 1.3976
{(100,000 x 1.3976) x (0.1)} /100 = 139.76 USD {(100,000 x 1.3976) x (0.1)} /30 = 465.86 USD
Spread Bet Account at 100:1 Trading EUR/USD Spread Bet Account at 30:1 Trading EUR/USD
Buy £1 EURUSD @ 1.3976 Buy £1 EURUSD @ 1.3976
{(10,000 x 1.3976) x (1)} /100 = 139.76 GBP {(10,000 x 1.3976) x (1)} /30 = 465.86 GBP
Spread Bet Account Trading UK100 @ 1% Spread Bet Account Trading UK100 @ 5%
Buy £2.00 UK100 @ 7209.3 Buy £2.00 UK100 @ 7209.3
{(1 x 7209.3) x (2)} x 1% = 144.19 GBP {(1 x 7209.3) x (2)} x 5% = 720.93 GBP
Spread Bet Account Trading WTI @ 1% Spread Bet Account Trading WTI @ 10%
Buy £5.00 WTI Crude Oil @ 63.75 Buy £5.00 WTI Crude Oil @ 63.75
{(10 x 63.75) x (5)} x 1% = 318.75 GBP {(10 x 63.75) x (5)} x 10% = 3,187.50 GBP


Where can I find more information on ESMA and these changes?

Please see the following link for more information.




Spread betting and CFD trading are high risk and may not be suitable for everyone. Losses can exceed your deposits