In summer 2018, the European Securities and Markets Authority (ESMA) introduced regulation aimed at increasing conduct standards across the leveraged trading industry. Here you can find out about the rules, and how they affect your trading.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
New ESMA regulation
What is the background to the new rules?
In January 2018, the European Securities and Markets Authority (ESMA) announced some proposals on leveraged trading. These included limits on the amount of leverage that providers could offer to retail traders, along with a 50% margin close-out rule.
As a result, a range of changes for retail traders took place – the most significant being that minimum margins on all CFD and spread betting markets increased across the industry.
The changes don't apply to traders that fulfil certain wealth and experience criteria, allowing them to be classed as 'professional'.
You can find out more about how ESMA's rulings will affect your trading with us below.
How do ESMA’s new rules affect IG products?
Minimum margin rates
The following leverage restrictions are now in place for retail traders, resulting in increased margins across all our markets:
- 30:1 leverage on major currency pairs = 3.33% margin
- 20:1 leverage on major indices = 5% margin
- 10:1 leverage on commodities (excluding gold) = 10% margin
- 5:1 leverage on equities = 20% margin
Positions entered before Saturday 28 July 2018 are still subject to the rates at which they were opened.
Negative balance protection
ESMA introduced a new rule to ensure that retail traders can never lose more than the money available on their account. If a retail client’s balance does go negative, we are obligated to bring the balance back up to zero at our own cost.
Binaries
ESMA has banned the marketing, distribution or sale of binary options to retail investors. This means that we no longer offer digital 100s or sprint markets to retail clients.
CFD options
We no longer offer CFD trading on options to retail clients contracted through our European offices.
If you’re a retail client, any CFD option position that you had open at 3pm (UK time) on Friday 27 July will have been closed at the mid-point of the IG price. As a result, no spread will have been charged.
Spread bet options
Running profit from bought options no longer counts toward margin requirements on other trades.
Margin close-out
ESMA has brought in a 50% margin close-out rule, at an account level. This means that when the profit and loss on your positions falls below 50% of the equity on your account, your positions will start to be automatically closed until the requisite funds are available.
Collateral
We no longer offer a collateral service to retail clients, meaning that you can no longer use the value of the assets in your share dealing account to cover the margin on your leveraged positions. If you have insufficient funds to cover the required margin in your leveraged trading account, your positions are at risk of being closed.
Credit limits
Select accounts allowed for certain types of credit limits or margin rates, and have been switched to ‘closings only’. This means that the account type and agreed terms remain, but holders can only close positions (at their convenience). Any new position would need to be opened under a newly set-up IG account.
Offsetting long and short positions
Previously, if you were long and short a particular market then you’d pay 10% of either leg. You now have to pay 100% of the margin on each position. This change only applies to positions opened on or after 28 July 2018.
Rollovers
When futures contracts roll over and a position is opened, the new position will be margined basis the ESMA-mandated minimums – regardless of when the original position was opened.
Concessions
ESMA regulations mean that retail clients can’t receive any form of rebate or concession.
Professional clients will not be affected by these changes
These changes only affect retail clients in the European countries subject to ESMA regulation, and do not apply to professional clients.
If you think you may be eligible and would like to apply to be categorised as a professional client, you can elect to do so in My IG or the IG Trading app. You’ll need to answer some questions, so that we can properly assess whether you fulfil the FCA’s criteria. Log in to My IG or the app and follow the prompt, or go to ‘settings’>‘client and account status’ on desktop, or the 'accounts' area in-app.
