The ESMA measures apply to all retail clients and impact CFD margining, close-out, carrying costs and accounting, a summary of which is provided below:
- Negative Equity Protection: this protection afforded to retail clients by ESMA effectively limits client CFD losses to the funds the client has dedicated to CFD trading. This protection requires that your CFDs be funded and margined separately from other products in your account.
- Minimum Initial Margin: ESMA has established minimum initial margin requirements, for example 20% for stock CFDs and 5% for major indices. Initial margin is payable in cash only, unrealized CFD profits cannot be used for this purpose. IBKR may elect to establish margin requirements above this minimum as necessary, and frequently does so. You can see our margin requirements on our website.
- Close-Out Protection: ESMA also mandates the close-out of CFD positions if CFD related equity falls below 50% of the initial regulatory margin posted. Note that equity for maintenance margin purposes includes unrealized CFD P&L. IBKR will not liquidate other instruments or transfer cash from another segment of your account to satisfy either a house or regulatory margin violation. Note however that we may liquidate CFDs or use excess CFD cash to cover a margin deficiency in a non-CFD segment of your account.
- Carrying Costs: to mitigate the exposure posed by Negative Equity Protection, IBKR applies an additional 1% spread to the financing charges for open positions. In addition, large positions may be subject to an additional margin requirement. You can see our CFD carrying costs (IBKR CFD Contract Interest) on our website.
- Open Trade Equity: to facilitate these requirements, IBKR no longer debits or credits your cash balance for the daily mark-to-market of the CFD. Instead, unrealized profits or losses are aggregated as Open Trade Equity and posted to your cash balance when the position is closed. This change has no impact upon your overall profit or loss or account equity, but results in a change to the cost basis of open CFDs. The cost basis of open CFDs corresponds to the prior day’s close.
Note that these rules apply solely to clients classified as retail. Clients that have been classified as professional are not affected by the above rules and do not benefit from the ESMA investor protection measures.
See the Overview of ESMA CFD Rules Implementation at IBKR (UK) - Retail Investors Only and the Overview of Central Bank of Ireland CFD Rules Implementation for Retail Clients at IBIE.
Find more information on ESMA product intervention measures on CFDs and binary options on the ESMA website.