ESMA

ESMA is an independent EU authority based in Paris, set up in 2011 as part of the post-crisis overhaul of European financial supervision. It does not license brokers itself; that is done by national regulators such as CySEC in Cyprus, BaFin in Germany or the AMF in France. ESMA's role is to build a common EU rulebook, promote consistent supervision and, in specific circumstances, use temporary product intervention powers.

The 2018 CFD measures

In 2018 ESMA used those powers for the first time on retail products. For CFDs sold to retail clients it introduced:

• Leverage limits: 30:1 for major currency pairs; 20:1 for non-major pairs, gold and major indices; 10:1 for other commodities and minor indices; 5:1 for individual shares; 2:1 for cryptocurrencies.
• Margin close-out: positions must be closed when account equity falls to 50% of the margin required.
• [Negative balance protection](/glossary/negative-balance-protection): a retail client cannot lose more than the funds in the account.
• No incentives to trade, such as trading bonuses.
• A standard risk warning including the firm's CFD loss disclosure figure.

It also banned the sale of binary options to retail clients. National regulators subsequently adopted these measures permanently.

Worked example

With 1,000 euros of margin, a retail client can open at most 30,000 euros of EUR/USD exposure (30:1), or 20,000 euros of AUD/USD exposure (20:1).

Practical note

Professional clients fall outside these limits but lose the protections. See ESMA leverage limits and negative balance protection.