Retail client

Under the EU's MiFID II rules, investment firms must classify every client as a retail client, a professional client or an eligible counterparty. Retail is simply anyone who is not professional or an eligible counterparty, so almost every individual who opens a trading account starts as a retail client. The UK's FCA uses the same categories.

Protections for retail clients trading CFDs

In the EU, ESMA's 2018 CFD measures, since adopted permanently by national regulators such as CySEC, give retail clients:

• Leverage caps: 30:1 on major currency pairs, 20:1 on other pairs, gold and major indices, 10:1 on other commodities and minor indices, 5:1 on individual shares and 2:1 on crypto.
• A 50% [margin close-out](/glossary/margin-close-out) rule per account.
• [Negative balance protection](/glossary/negative-balance-protection), so losses cannot exceed the account balance.
• A ban on incentives to trade CFDs, such as cash or gifts offered for depositing or trading.
• A standard risk warning showing the percentage of the firm's retail accounts that lose money.

Retail clients also get the fullest conduct-of-business protections under MiFID II, such as appropriateness checks and detailed cost disclosures, and are typically covered by an investor compensation scheme if a firm fails.

Example

Illustrative figures: a retail client wants to open 1 standard lot of EUR/USD at 1.1000. At the 30:1 cap, the broker must hold about 3,667 dollars of margin. A professional client at a broker offering 100:1 might need 1,100 dollars. The market risk on the position, about 10 dollars per pip, is identical in both cases.

Practical note

Most retail CFD accounts lose money, and broker disclosures commonly show figures in the 60s to 80s per cent. The protections limit some of the damage; they do not change those odds. See ESMA leverage limits and negative balance protection and why most retail CFD traders lose.