ESMA is the EU securities supervisor, based in Paris, and it works with the national competent authorities of each member state. In 2018 it used new powers under Article 40 of MiFIR to restrain retail trading in risky derivatives. The two targets were contracts for difference and binary options sold to retail clients across the EU.
The Board of Supervisors agreed the restrictions on 23 March 2018, and ESMA adopted them in June 2018. The binary options ban took effect on 2 July 2018 and the CFD restrictions on 1 August 2018. Under MiFIR, ESMA could only impose these as temporary measures, three months at a time and renewable. The aim was plain: retail clients were losing money faster than the leverage on offer could justify, and a common EU floor was needed.
The CFD leverage cap scales with how volatile the underlying is. A calmer market gets more room, a wilder one gets less. The cap limits the size of position a retail client may open with a given amount of margin.
Major currency pairs sit at the top of the scale. EUR/USD, GBP/USD, USD/JPY and USD/CHF may be traded at up to 30:1. Non major pairs, gold and major indices drop to 20:1. Other commodities and non major equity indices sit at 10:1. Individual shares are capped at 5:1 and crypto CFDs at 2:1. A broker may offer less, never more, to a retail client in the EU.
These figures are maximums, not targets. A 30:1 cap means a 3.33 percent margin requirement on a major pair, while a 2:1 crypto cap means a 50 percent margin requirement. The lower the cap, the more cash must sit in the account to hold the same position, and the less a single adverse move can damage the balance. A gold trade sized for 30:1 will be rejected under the 20:1 rule, so the cap changes the moment you switch asset class.
Leverage is a multiplier, and the math is unforgiving. At 30:1 a 1 percent adverse move wipes out roughly 30 percent of the margin behind the trade, and a 3.33 percent move clears the whole position. At 500:1, a level offshore firms still advertise, a 0.2 percent move does the same damage. The caps exist because retail clients systematically overtrade high leverage, and ESMA framed the limits as a minimum level of protection every member state should keep, not a ceiling to race toward.
Two rules sit beside the leverage cap, and both protect the account rather than the trade.
The margin close-out rule forces the broker to act when things go wrong. If a retail account's equity falls below 50 percent of the margin needed to keep positions open, the broker must start closing them. The trigger is per account, not per trade, so one bad position can pull the whole book toward a close-out at the worst moment.
Negative balance protection is the second guard. It caps a retail client's loss at the deposited funds, so a gap through a stop cannot leave the client owing the broker money. Without it, a weekend gap or a flash crash could produce a debt instead of a loss.
A third rule bans inducements that push clients to trade more. Bonuses and similar perks that reward volume are not allowed on the retail CFD book. The firm is meant to earn from spread and commission, not from encouraging churn that harms the client.
The fourth requirement is a standardized risk warning. Each broker must publish the share of its own retail clients who lost money over a recent period, a range the NCAs found sat between 74 percent and 89 percent. Because the number is firm specific, a reader can compare one provider against another rather than accept a vague reassurance about safety.
The cap only works because these four guards sit with it. Drop one and the protection frays, which is why regulators kept them as a single package rather than a menu a broker could pick from.
A common mistake is to call the ESMA caps permanent EU law. That wording is wrong, and the difference matters for where you check the rule today.
ESMA's own measures were temporary by design. Article 40 limits them to three months, and ESMA renewed the CFD and binary options measures three times before deciding not to renew again. Once ESMA stepped back, the protection did not vanish, because the national competent authorities had already adopted their own measures under Article 42.
Those national measures were written to be at least as stringent as ESMA's, and most were made permanent. So in 2026 a retail client in France, Germany, Italy, Spain, the Netherlands, Cyprus or Malta still faces the same 30:1 major pair cap, the same 50 percent close-out and the same negative balance protection. The source of the rule shifted from ESMA to the NCA, but the effect on the trader did not change at all.
The United Kingdom followed the same path outside the EU. The FCA carried the CFD restrictions and the binary options ban into UK law after Brexit, so a retail client in Britain sees the same caps. The FCA can tighten further, but it cannot loosen below the ESMA style floor without opening a gap that Parliament would have to close.
Binary options are the clearest result of this shift. There is no longer an authorised retail binary options market in the EU or the UK. What ESMA temporarily banned in 2018 became a standing national prohibition, and clones that still advertise binary options to EU residents are operating outside the rules that now apply.
The practical takeaway is to verify the live rule with the NCA that oversees your broker. The FCA, BaFin and CySEC sites publish the current retail CFD conditions for the firms they authorize.
The caps apply to retail clients only. Elected professional clients are a different category with a different risk assumption.
A trader who meets strict tests, such as a large portfolio, significant trading volume or relevant experience, can request professional status from the broker. That status lifts the leverage cap and the close-out and negative balance rules, because the regulator assumes the client can bear the risk. The bar is high on purpose, and a broker that grants it too easily is itself breaching its obligations to weaker clients. Most everyday traders remain retail, and the caps were written for them.
The EU caps are not the only ones in the world, but they are among the strictest for retail clients who trade through licensed firms.
In the United States the CFTC caps retail forex at 50:1 on major pairs and 20:1 on minors. Australia and Singapore have moved toward similar retail limits, and the direction of travel has been toward tighter protection.
Offshore and lightly regulated jurisdictions still advertise 500:1 or more on forex. The extra leverage comes with far weaker client protection, no FSCS or Investor Compensation Fund backstop and often no negative balance guarantee. The headline number is not the whole story, because the guardrails around it decide whether a bad day ends in a loss or a debt.
The right comparison is not the cap alone but the package around it. A 30:1 cap with negative balance protection and a 50 percent close-out is a different risk profile from a 500:1 cap with none of those guards, even when both are called forex leverage on a brochure.
Because the rule now lives at the national level, the check belongs with the NCA, not with ESMA's old press release from 2018.
If your broker is FCA authorized, read the FCA's retail CFD page and confirm the entity on the FCA register. If it is CySEC authorized, use the CySEC register. For a German firm, BaFin publishes the conditions. The cap you are offered must match the regulator's published retail limit for that asset, and any number above it is a sign the account is not the retail one the rule describes.
When the leverage on your account exceeds the cap, the account is not retail, or the entity is not where it claims to be. Both are red flags worth stopping for before any money moves, because the protection you assumed you had may not exist.