Under ESMA’s lower leverage levels, already implemented by Capital.com, client win-loss levels significantly improved and reduced the rate of margin calls.
Following the announcement by the European Securities and Markets Authorities (ESMA) that leverage rates offered by CFD trading providers must be significantly reduced by 1 Aug 2018, leading CFD trading provider Capital.com reduced its default rates across commodities, currencies, cryptocurrencies, equities and indices from 1 June 2018. This has enabled the first analysis of the impact of lower leverage rates on client behaviour and trading performance, which has clearly indicated a significant improvement in client outcomes.
The overwhelming majority of users who registered for Capital.com’s trading platform in June chose the ESMA-mandated lower leverage limits. Comparing their performance against published industry performance levels and historic client performance reveals that users who traded using the lower leverage limits traded more successfully and were significantly less likely to face a margin call. The proportion of users facing a margin call within first 15 days of trading fell from approximately 30% in the months before Capital.com introduced the ESMA limits, to just 5% in June. The size of the average loss fell by over 80%.
Ivan Gowan, CEO at Capital.com, commented on the analysis: “It is immensely encouraging to see traders responding well to the lower leverage limits agreed by ESMA, reducing their risk and trading more successfully. There is a balance to be struck here, to allow traders to benefit from appropriate leverage without eliminating the enjoyment and potential of CFD trading, but our analysis suggests that ESMA’s theoretically-devised levels are broadly correct in practice.
“Far from harming the industry as many predicted, lower levels of leverage for new traders will ensure a more sustainable CFD market, as more successful traders engage with their chosen platform for a longer period of time. CFD providers that struggle to operate in this enhanced regulatory environment are encouraging traders to take unsustainably high risk, and if they cannot survive in a market that works better for the consumer, then the market is better off without them. We believe that more experienced and more sophisticated traders should be able to make informed choices about leverage levels, but novices can now trade with greater confidence following the implementation of these measures. Although we have taken a lead, from 1 Aug 2018, all regulated trading platforms must mandate these leverage levels, and this will improve client success rates and satisfaction across the industry.”
Ivan concludes: “While these measures are a great starting point for retail investors, truly responsible CFD trading providers should be focusing on educating and informing their customers, to help them further improve their trading skills. This should include giving them insights on the markets they are actually interested in, rather than blinding them with random commentary. We want our users to enjoy trading CFDs over the long term, and we believe that the best way to ensure this is by delivering a great user experience and by helping them to trade successfully.”