This week, we’re proud to say that we are now the first CFD trading platform to become fully compliant with ESMA’s recent regulations, cementing our place as an industry market leader by focusing on responsible and ethical client outcomes. This move comes well in advance of the actual implementation of the new regulations.
Earlier this year, ESMA set out a series of measures designed to protect retail traders from unsustainable and unforeseen risks. These include negative balance protection to prevent traders losing more money than they invested, the additional protection of an individual trade closeout rule, and stipulated maximum levels of leverage which reflect the volatility of each asset class. In addition, ESMA has mandated that advertising cannot include financial incentives related to the opening of an account and must feature a specific risk warning which indicates the historic trading success rate.
Reflecting our business culture and the value we place on fair client outcomes, these proposed changes were for the most part already in place at Capital.com. Since our launch, we have had negative balance protection, margin closeout, and responsible marketing as standard. Rather than waiting on the ESMA deadline, we’ve decided to reduce the leverage limits we offer, continuing our culture of guaranteeing fair client outcomes, compliance with all relevant regulations and a dedication to responsible trading.
The regulations stipulate that CFD trading providers must set maximum leverages across different asset classes, from 1:30 for major currency pairs down to as low as 1:2 for cryptocurrencies. We’ve implemented these leverage limits as default settings for our users, to ensure compliance with ESMA’s statement and promote responsible trading.
However, we are concerned that ESMA has arbitrarily set leverage levels too low. We’re worried clients may be tempted to deal with illegal offshore providers, where protections to traders are either extremely low or non-existent.
To minimise this risk initially, our clients will have the option to revert to higher leverage levels, until ESMA’s regulations come into force. We already offer users leverage based on their experience level – providing those with less experience lower leverage limits.
Many unsuspecting traders are already dealing with offshore providers, some of which are simply sophisticated financial scams. An excessive clampdown on available leverage could increase the number of traders who fall prey to these operators.
We will work with regulators to learn from early experiences once new regulations are implemented, and help adjust the regulations accordingly, to ensure the best outcome for traders across the EU.