18.05.2021

New ESMA Measures Impose 2:1 Restriction on Leverage for Crypto CFDs

Under the new measures, the leverage offered on cryptocurrency CFDs will be limited to no more than 2:1.

The European Securities and Markets Authority (ESMA) has announced that it will impose restrictions on the leverage offered for contracts-for-difference (CFDs) and binary options offered to European retail investors.

European Securities Regulator Imposes Restrictions on Leverage Offered by CFD Providers

ESMA has agreed on what it describes as “temporary product intervention measures on the provision of CFDs and binary options to retail investors in the European Union (EU).”

The new measures will see restrictions on the leverage offered on cryptocurrency CFDs to no more than 2:1. The agreements will also mandate that traders provide an initial margin of “50% of the notional value of the CFD when the underlying asset is a cryptocurrency” – more than twice the initial margin required of any other CFD.

New Measures See Harshest Rules Imposed on Cryptocurrency CFDs

ESMA has stated that cryptocurrencies CFDs states that “CFDs with cryptocurrencies as an underlying raise separate and significant concerns as CFDs on other underlying” assets.

The regulator stated that “Cryptocurrencies are a relatively immature asset class that pose major risks for investors.” ESMA expressed “concerns about the integrity of the price formation process in underlying cryptocurrency markets”, arguing that such “makes it inherently difficult for retail clients to value these products.”

ESMA concluded that “Due to the specific characteristics of cryptocurrencies as an asset class the market for financial instruments providing exposure to cryptocurrencies, such as CFDs, will be closely monitored.” Based on its findings, ESMA “will assess whether stricter measures are required.”

New Rules to be Formalised in “Coming Weeks”

The measures will also see restrictions of 30:1 placed on “major currency pairs;” 20:1 for “non-major currency pairs, gold and major indices;” 10:1 for “commodities other than gold and non-major equity indices;” and 5:1 on “individual equities and other reference values.”

ESMA states that it “intends to adopt these measures in the official languages of the EU in the coming weeks.”

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