Z.com Trade, the UK trading arm of GMO CLICK Group, has announced today that it will be making changes to its product. This is to comply with regulation from the European Securities and Markets Authority (ESMA) regarding CFDs in the wake of the August 1, 2018 deadline.
The broker will make changes to its product’s leverage levels and Margin Closeout percentage as per the regulations. This means, retail investors will have a cap on leverages from 30:1 to 2:1 depending on the underlying asset, which will come into effect on the platform on July 22, 2018.
The Margin Closeout active on a trading account on Z.com Trade will also be standardized at a percentage of 50 percent. In the company’s statement, it reminds investors to be mindful of the new leverage limits which require an increased margin in trading accounts. Z.com Trade urges its investors to check they have sufficient funds in their account frequently to avoid a margin closeout.
However, the above changes to Z.com Trade’s product are only applicable to retail investors. The company will offer its full product as it is currently for clients that are willing to reclassify as a ‘Professional Client.’
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The European Union (EU) regulation aims to protect retail investors from losing more money than what they invested. As a result, this class of investors is not able to use levels of leverage higher than 30:1.
One popular way investment firms have been allowing their clients to still get access to high levels of leverage is to offer products only for professional investors. This is because professional investors, due to the requirements, have decent experience and knowledge of investing and therefore, should be more aware of risks of loss. Only this morning, XTB announced it would offer its professional clients a 200:1 leverage.
To be able to reclassify as a professional investor, according to EU regulation, investors must meet two of out three following criteria:
- A client has entered into transactions with a value of EUR 50,000 and have carried out a minimum of ten transactions per quarter during the last 12 months;
- The value of their portfolio of financial instruments, together with cash included, is at least the equivalent of EUR 500,000;
- Have worked or currently work in the financial sector for at least one year in a position that requires professional knowledge of transactions in financial instruments or brokerage services.
Traders can apply for a re-classification with their broker.