What do the new ESMA margin rules mean for your trading? PLEASE LIKE THIS VIDEO IF YOU FOUND IT USEFUL. IT HELPS A LOT. These ESMA rules come into effect on the 28th July 2018. The main ones are going to be the margin requirements; i.e. the leverage you can utilise when you're trading. At the moment it is pretty much the Wild West when it comes to forex; some brokers offer crazy amounts of leverage like 500:1, other brokers offer more conservative leverage rates like 200:1, 100:1 or even 50:1. In other words how much money do you need to have in your trading account to control a specific position size? If you have 1 lot of EUR/USD, say EUR10,000 - how much is that going to cost you in terms of margin? In the past this could be as little as GBP100 or as much as GBP1000 or more. These rules will broadly make brokes who are regulated in the European Union adhere to the same rules.
- Margins will be fixed at 30:1 for the major currency pairs containing any two of the following: USD, EUR, JPY, GBP, CAD, CHF
- Minor FX - all other currency pairs margins will be 20:1
- Major indices - UK 100, Wall Street, Germany 30, US 500, US Tech 100, EU stocks, France 40, Japan 225, Australia 200, US Dollar Index - margins will be 20:1. This is going to have a big impact on many people.
- Minor Indices - all other indices margins will be 10:1
- Gold, 20:1
- Commodities, Oil and Silver - 10:1. That means no more big positions unless you have the margin to back it up.
- Shares, 5:1. In the past European brokers would allow more flexibility on the bigger stocks. No more - the maximum will be fixed at 5:1
- Crypto, 2:1. Not really surprising considering the volatility but still quite harsh.
Margin Changes Example
Market - STAKE - PRICE - Margin Required (pre 28th July 2018) - Margin Required (from 28th July 2018) - Extra Margin Required (from 28th July 2018)
EURUSD 1 1.17913 £58.96 £392.65 7x
USDCHF 1 0.9839 £98.39 £327.93 7x
GOLD 1 1298.50 £129.73 £648.65 5x
UK100 1 7715 £38.58 £385.75 10x
CRUDE OIL 1 66.50 £65.17 £651.17 10x
BARCLAYS 1 215.25 £10.76 £43.04 4x
APPLE 1 185.60 £928.00 £3712 4x
BITCOIN 1 6985 £139.70 £349.25 2.5x
The other thing is the 50% margin close out.
If the total margin in an account falls more than 50% of the initial margin amount required to open the CFD position, the provider must close one or more of the CFD positions. Let's see an example. Let's say a client opens a trading account with a Forex broker, depositing EUR500 in totoal.
The trader decides to open a short trade in EUR/USD, by going short 5 mini-lots (one tenth of a full lot). One full lot of EUR/USD is equivalent to €10,000, meaning 5 mini-lots are worth €5,000.
Minimum margin required to open this trade:
€5,000 divided by the new margin requirement (30) = EUR166.66
This is the minimum required margin to maintain the trade. Half of that amount is EUR83.33. Let's suppose the trade goes against the client, with the price of EUR/USD continuing to rise well above the entry price. If the price rises enough to net a floating loss of EUR416.67 [EUR500 - EUR83.33], the broker has to close that trade out even if the trade doesn't have a stop loss or has not yet reached the stop loss level. In theory, this means that a client’s account can never reach zero. Examples involving multiple open trades will be more complex, but will operate according to the same principles.
Part 1: What the New ESMA Regulations Mean For You ❗❗
Part 2: ESMA Toughens Margin Rules on CFDs & Forex Trading 🚨