Here’s David Cheetham from XTB explaining the new ESMA changes…

Tell other's what you think and vote in our "Broker of the year Awards"

You could win a £1,000 Amazon voucher...

On 1st August 2018, the Financial Conduct Authority, guided by ESMA’s product intervention measures, introduced a raft of changes to the CFD and spread-betting industry. These changes are being implemented by European regulators and affect ALL EU-regulated FX, CFD and spread-betting providers, and will significantly impact the way you can trade moving forward.

Please note, the below changes does not impact Elected Professional clients. For more information on Elected Professionals, please click here.

What are the changes introduced by ESMA?

Watch XTB’s short video

1: Leverage is reduced

While there are three major changes, arguably the largest is the reduction in leverage – including limiting leverage to a maximum of 30:1 for major FX pairs and 20:1 for major Indices. Here’s a table of the leverage changes for each asset class:

CFD instruments Previous Leverage Leverage from 1st August
Major FX Pairs

Eg EURUSD, GBPUSD

200:1 30:1
Minor FX Pairs

Eg EURCAD, AUDJPY

100:1 20:1
Major Indices & Gold

Eg DE30, US30

100:1 20:1
Commodities

Eg Silver, Oil

50:1 10:1
Equity CFDs

Eg Facebook, Barclays

10:1 5:1
Cryptocurrencies

Eg Bitcoin, Ethereum

5:1 2:1

Essentially this means that if you want to retain the same level of exposure in the market you’re trading, a larger amount of margin will be required. Take a look at how this affects a popular FX pair like EURUSD:

  Previous Leverage Post ESMA Leverage
Instrument EURUSD EURUSD
Size 1 Lot 1 Lot
Leverage 200:1 30:1
Margin requirement £436 £2900

As you can see, to trade the same size as before on EURUSD, you need to have over three times more margin on your account. If you’re looking to trade an index like the DAX, you’ll need five times the funds in your account for the same position. For commodities like oil, it’s 10 times the original margin requirement.

 2: 50% Margin Close Out

Margin closeouts – which previously varied from broker to broker – will now be set at 50% as standard. This means that if your margin is approaching 50% (instead of 30% for example with XTB) your largest losing position will be automatically closed on your behalf, as a safety mechanism to prevent you from incurring further losses.

3. Cashback and other incentives

All monetary and non-monetary based incentives such as Cashback and Refer a Friend schemes are banned by the Financial Conduct Authority. Therefore, all cashback agreements and other incentive based agreements were terminated by 31st July 2018.

Professional clients are unaffected by theses changes

As a result of these measures, many traders are considering upgrading their status from Retail to Elected Professional. Why? Because these product intervention rules only affect traders who are classified as ‘Retail’, meaning that Elected Professionals can still trade with their normal leverage levels i.e. 200:1. It’s also important to note that not everyone can elect to become a professional client. Only those clients with sufficient trading experience and understanding of the product can do so, both of which are validated by a quantitative and qualitative test by the broker. Find out more here.

Good Broker Guide Featured Brokers

Looking for institutional broker? Compare prime brokers here

David Cheetham is the Chief Market Analyst at XTB UK who began his career trading Brent futures on a prop desk. David took the job after completing an MSc in Banking and Finance at Newcastle University. After initially trading Brent futures, he quickly expanded to cover WTI and some fixed income markets. After two years he branched out and started trading for himself, covering a wider range of assets including indices and FX whilst maintaining his core focus on Oil. David actively trades most asset classes. Whilst his approach is predominantly technical, he is well aware of fundamental drivers impacting markets and uses a combination of both when selecting his trades.