Loss rates on CFDs
Analyses by European regulators found that typically 74 to 89 percent of retail client accounts lose money on CFDs. The figure has since been mandatory in every ad.
This figure is so informative precisely because it doesn't come from critics, it comes from national regulators' own analyses, and because providers are required to publish it themselves.
The European securities regulator ESMA summarized national regulators' analyses in 2018: across various EU countries, typically 74 to 89 percent of retail client accounts lost money on CFDs. Average losses per client ranged from €1,600 to €29,000 depending on the country.
As a result, leverage caps for retail clients, negative-balance protection, and a requirement to state in every ad what share of a provider's own retail clients lost money over the past twelve months have applied since.
You'll find this figure on every CFD ad. Read it once, deliberately. No other financial product has to tell you upfront how many of its customers lose money with it.
National regulators' analyses of CFD trading across various EU jurisdictions showed that typically 74 to 89 percent of retail client accounts lose money, with average losses per client between €1,600 and €29,000.
The regulator justified stepping in by citing the products' complexity and lack of transparency, excessive leverage on CFDs, a structurally negative expected value for binary options, and a built-in conflict of interest between providers and clients. Measures included tiered leverage caps, a uniform margin-close-out rule at 50 percent of required margin, negative-balance protection, restrictions on incentives, and the standardized risk warning stating the loss rate.
Important for context: these rates count accounts, not people, and cover a twelve-month period. Over longer periods, higher shares should be assumed, since the probability of experiencing at least one losing period rises with the length of observation. The stated rate is therefore more of a floor than a ceiling.
Summary
- 74 to 89 percent of retail client accounts lose money on CFDs.
- The figure comes from regulators and providers themselves.
- Since it only covers twelve months, it's more a floor than a ceiling.
Did you get it?
Where does the 74 to 89 percent range come from?
From national regulators' analyses, summarized by the European securities regulator ESMA.
What measures followed from it?
Leverage caps, a margin-close-out rule, negative-balance protection, incentive restrictions, and mandatory disclosure of the loss rate.
Why is the rate more of a floor?
Because it only covers twelve months. Over longer periods, the share of accounts with losses rises.
Sources and further reading
- ESMA, press release of 27 March 2018 on product intervention measures for CFDs and binary options, esma.europa.eu View source ↗
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