Leverage has historically been as high as 500:1 so this may significantly reduce the amount of exposure clients can trade on.
Clearly there are good and bad points to this and certainly reduced margin along with negative balance protection (i.e. you can’t lose more than your account balance) is a good thing for the majority of inexperienced traders.
However, for experienced, professional and clients using CFDs and spread betting for hedging purposes this will have a big impact.
Here are the margin rate maximums that ESMA is proposing:
- 30:1 leverage on major currency pairs, increasing margins from 0.5% to 3.33%
- 20:1 leverage on major indices, increasing margins from 0.5% to 5%
- 10:1 leverage on commodities (excluding gold), increasing margins from 2% to 10%
- 5:1 leverage on equities, increasing margins from a min of 5% to 20%
If you’d like to give your feedback to EMSA answer this question: What impact do you consider that the envisaged measures would have on retail investors? on a Word document and upload it here.