EU crypto margin trading limits come into force
The European Union has set margin trading leverage limits on cryptocurrency contracts for difference (CFDs) at 2-to-1, which was enforced on Wednesday.
The measure, aimed at ensuring inexperienced investors don’t lose too much money on electronic retail trading platforms when cryptocurrencies turn volatile, will continue for at least three months when the European Securities and Market Authority (ESMA) will consider renewal.
Contracts for difference are derivatives of underlying assets such as stocks or currencies, where the investor takes a position – either speculating the underlying asset will gain or lose – against the broker over a certain period of time.
ESMA said the 2-to-1 restrictions on crypto CFDs were based on volatility in the virtual currency markets. By comparison, the leverage limit for fiat currency CFDs is 30-to-1: this means that for every €1 the investor deposits on the trading platform, the platform will allow €30 to be staked on CFD positions.
Steven Maijoor, chairman of ESMA said in June when the measures were proposed: “This pan-EU approach is the most appropriate way to address this major investor protection issue.”