The European Securities and Markets Authority (ESMA) is the overarching regulatory body overseeing all local European regulators such as the FCA in the UK or the BaFin in Germany. The ESMA has formally adopted new regulatory measures for contracts for differences (CFDs) that will be applied as of 1 August 2018. The required changes revolve around 5 components that influence the service delivery of the BUX app. This FAQ tries to clarify what these changes mean to the BUX offering for CFDs:
- Limited leverage levels: there is a limit on the maximum multiplier that we are allowed to offer. Luckily, this doesn't change much from the existing maximum multipliers, but there are a few products that are impacted. On the bottom of this FAQ you can find a table with the maximum allowed multiplier per product.
- Restriction on the marketing, sale or distribution of CFDs: we are not allowed to reward clients anymore for converting to seriousBUX or for performing more CFD trades.
- Negative balance protection: clients are not allowed to have a negative account balance. With us this was already the case so there won't be any change!
- Standardised risk warning: all our marketing advertisements are now required to show a standardised risk warning
- 50% margin close out rule: we are required to close a position when a client has lost 50% of its trading capacity. This for example means that when you've invested all your money in a single position and this position has lost 50% of its investment, we are required to close this position. Therefore, it's important that you always have enough cash available on your account to keep your positions open. More information regarding this is explained in the Trading Coach in the BUX app. Also see below for a quick example as to how this is calculated:
Your Trading Capacity, (a.k.a. margin), is determined by your Cash balance, original invested amount and the profit or loss of your open positions. You calculate it like this:
(Cash balance + Value of open positions) ÷ (Cash balance + Original invested amount)
Here’s an example: Say you deposit €500 and invest €400 in Facebook which then drops by 10%. At this point, your Cash is €100, the invested amount remains €400 and your loss is €40. Your Trading Capacity would be:
(100 + 400 - 40) ÷ (100 + 400) = 0.92 which is 92%
The maximum multiplier per product are as follows:
|Product type||Specific product(s)||Max multiplier|
|Currency||Currency pair that is composed of any two of the following currencies:|
USD, EUR, JPY, GBP, CAD, CHF
|Currency||All other currencies not listed above||20|
|Index||Underlying index is|
FTSE100, CAC40, DAX30, DJIA, S&P500, NASDAQ, NASDAQ100, NIKKEI225, ASX200, EUROSTOXX50
|Index||All other indices not listed above||10|
|Commodity||All other commodities not listed above|
For more questions regarding the new ESMA measures, please contact email@example.com.