The European Securities and Market Authority (ESMA) which oversees the securities markets of the EU released a statement addressing concerns of the legal requirements of non-compliance to providers of contract for difference or CFD.
They have found it necessary to remind CFD providers about the legal requirements in connection to offering this derivative after identifying several providers with undesirable practices.
They are specifically addressing the practice of:
Promotional language by marketing, distribution or sale by third-country CFD-providers to offer clients incentives for a professional client status.
ESMA Chair Steven Maijoor said that there have been concerns regarding providers who circumvent the legal requirements which led to the ESMA adopting their own product intervention measures regarding their offering of CFDs to retail clients.
In addition to that:
In 2018 The National Crime Agency (NCA) adopted product intervention measures across the European Union because of significant concerns.
Following the intervention by the NCA similar measures have been adopted across the EU on a permanent basis.
Maijoor continued saying that all CFD providers need to respect all the requirements applicable and do not circumvent them by offering professional client status or third-country entities thus ensuring that investors are protected.
That’s not all…
Leverage rates of between a margin of 2:1 and 30:1 (depending on the specific instrument) are also part of the new ESMA intervention measures.
According to the ESMA some CFD providers have been offering the incentive to professional clients on request through advertising.
The ESMA said that any form of promotional language in connection to the status of a professional client should be strictly refrained and that it includes giving comparisons of leverage limits for different types of clients, or any rewards that the client will get as a professional client.
Some CFD brokers that are based in the EU have been giving their clients access to highly leveraged accounts without them having the necessary experience.
Both the ESMA and NCA said that they are going to continue monitoring compliance of CFD providers.
In August 2018 the new restrictions put in place by the European Securities and Markets Authority (ESMA) came into effect and as part of the restrictions are new leverage limitations.
They are set out below and include negative balance protection and margin closeout restrictions.
These restrictions have been introduced in order to protect clients.
• 10:1 for commodities with the exception of gold and non-major equity indices
• 5:1 for CFD stocks
• 30:1 for major currency pairs (such as EUR/USD)
• 20:1 for non-major currency pairs (such as EUR/NZD), gold and major indices
• 2:1 for cryptocurrency CFD
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According to the restrictions, clients at eToro will have a margin closeout that is set at 50%. This means that the Stop Loss is limited to a maximum of 50% per trade.
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Here’s a list of their advantages:
• Fully regulated and authorized by a number of financial institutions
• Education programs with video’s, webinars, e-books and more
• Highly advanced trading tools and graphs
• Demo account with virtual money
• Trading on mobile devices including Android and iOS platforms
• Financial news updates and alerts
• No hidden fees or commissions
• Digital multi-signature wallet to, send and receive multiple coins
• Minimum deposit of $200
• Variety of perks and bonuses
• Unique and intuitive social trading platform with the ability to copy (mimic) other top traders
Clients at eToro are subject to all the changes as set out above, excluding clients that enjoy the status of Elective Professional Client, they are entitled to certain benefits.
However, they should be aware that as an Elective Professional Client they do not have the same protection as retail clients.
If you want to find out more about being or want to apply for an Elective Professional Client status you can get further relevant information on eToro’s blog post.
eToro is fully compliant with all the regulations, ensuring that their clients have safe and secure trading conditions. In addition, they offer a number of exciting perks on their platform that you won’t find anywhere else.
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*eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66% 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.
Past performance is not an indication of future results.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework.
Our team of financial experts have years of experience in the foreign exchange markets and can guide you into focusing on the more important factors to look at in selecting a forex broker to sign-up for.
And we don’t just look at the numbers here. We go beyond the quantities or amounts to make a real and measurable review that is based not just on the pros but also on the cons.