Leverage and Margin Policy
About our Company
“”The Coverdeal Holdings Limited”” is a Cyprus Investment Firm (‘CIF’) incorporated under the laws of Cyprus which has its principal place of business at Kristelina Tower, 12 Arch. Makarios III Avenue, Office 201, 2nd Floor, Mesa Geitonia,4000 Limassol, Cyprus; and registered with the Registrar of Companies in Nicosia under number: HE303127.“”The Coverdeal Holdings Limited”” is regulated by the Cyprus Securities and Exchange Commission (‘CySEC’), license number 231/14 and operates in accordance with the Markets in Financial Instruments Directive (‘MIFID II’) of the European
Coverdeal Holdings Ltd (hereinafter, the “”Company””) has established aLeverage and Margin Policy (hereinafter, the“”Policy””) which applies to all its retail clients. The Policy is in accordance with the requirements of:
a) Circular C168 of the Cyprus Securities and Exchange Commission concerning the updated version of ESMA Q&A document relating to the provision of CFDs and other speculative products to retail investors under MiFID,
b) The question and answer 1 of Section 8 of ESMA/2016/1165 relating to the provision of CFDs and other speculative products to retail investors under MiFID.
c) Circular C271 of the Cyprus Securities and Exchange Commission concerning the ESMA Product Intervention Decision on CFDs and Binary Options
The purpose of this Policy is to set out the leverage and margin practices of the Company in order to increase investor protection.
The Policy applies to all retail clients who are speculating on the short-term movements in the price of CFD’s which are complex products and it may be difficult for a majority of them to understand the risk involved.
This is reflected in the requirement to assess appropriateness as part of the account opening process. We adopted a robust process to assess the knowledge and experience of retail clients and potential retail clients, to check whether they understand the risks involved and to determine whether the Company’s products are appropriate for them.
Clients who fail the appropriateness test
Clients who have been subjected to the appropriateness test and the Company has assessed that the financial instruments and investment services it offers are not appropriate for them are informed accordingly and are not allowed to trade on Live
account. The Demo account as well as education material for clients who wish to develop their understanding and knowledge is suggested
3. Leverage and Margin Limits
In relation to Leverage and Margin we have adopted and applied regulatory requirements and caps set by ESMA in their Product Intervention Decision on CFDs document dated June 2018.
The following Leverage Limits apply from 1st of August 2018 on the opening of a position by a retail client. These have been
set according to the volatility of the underlying:
- 30:1 for major currency pairs;
- 20:1 for non-major currency pairs, gold and major indices;
- 10:1 for commodities other than gold and non-major equity indices;
- 5:1 for individual equities and other reference values;
Initial Margin Percentages by type of underlying
The Initial Margin is the percentage of a financial instrument price that you, as the client, need to pay for the purpose of entering into CFD, excluding any commission, transaction fees and any other related costs.
This requirement is basically the amount of collateral needed in order to open a margin account; open and maintain a position.
CFD providers will have to require retail investors to pay the following initial margin on the opening of a CFD (initial margin protection):
- (a) 3,33% of the notional value of the CFD when the underlying currency pair is composed of any two of the following currencies: US dollar, Euro, Japanese yen, Pound sterling, Canadian dollar or Swiss franc;
- (b) 5% of the notional value of the CFD when the underlying index, currency pair or commodity is: (i) any of the following equity indices: Financial Times Stock Exchange 100 (FTSE 100); Cotation Assistée en Continu 40 (CAC 40); Deutsche Bourse AG German Stock Index 30 (DAX30); Dow Jones Industrial Average (DJIA); Standard& Poors 500 (S&P 500); NASDAQ Composite Index (NASDAQ), NASDAQ 100 Index (NASDAQ 100); Nikkei Index (Nikkei 225); Standard & Poors/Australian Securities Exchange 200 (ASX 200); EURO STOXX 50 Index (EURO STOXX 50); (ii) a currency pair composed of at least one currency that is not listed in point (a) above; or (iii) gold
- (c) 10% of the notional value of the CFD when the underlying commodity or equity index is a commodity or any equity index other than those listed in point (b) above;
- (d) 20% of the notional value of the CFD when the underlying is a share, or is not otherwise listed above.
Margin close-out rule per account
A margin close-out rule will be imposed on a per account basis rather than a per position basis.
The standardized margin close-out rule has been set at 50% of the total initial margin. The threshold has been set out in ESMA’s mitigation measure to ensure an adequate common minimum level of protection for retail investors.
Negative Balance Protection
A negative balance protection means that our clients may never lose more funds than those deposited in their trading account (i.e. negative balance protection).
A negative balance protection on a per account basis will be imposed, limiting a retail investor’s aggregate liability for
all CFDs connected to a CFD trading account with a CFD provider to the funds in that CFD trading account.
4. Risks Involved
Trading CFDs is a form of Leveraged Trading and is highly speculative, complex and involves a significant risk of loss and is not suitable for all investors. CFDs are among the riskiest types of investments and can result in large losses.
Before deciding to trade CFDs a client should carefully consider his/her investment objectives, level of experience and risk appetite. While trading CFDs a client can sustain a partial or full loss of his/her initial investment. Clients should be aware of all the risks associated with trading CFDs and seek advice from an independent financial advisor if they have any doubts. CFDs are not suitable for “buy and hold” trading, therefore if a client does not have enough time tomonitor such investment on a regular basis, he or she should not trade in CFDs.
5. Approval and Reviews
This Policy has been approved by our Board of Directors and in this policy, we collectively refer to all the above legislations, regulations and guidelines as “Regulations”. Moreover, the Company’s Policy is consistent with sound and effective risk management and intended to deter risk-taking beyond the Company’s expressed risk appetite and risk tolerance levels.
The Compliance Officer shall regularly review and update this Policy from time to time as shall be necessary to adhere to changes in the relevant legislation and level of risk.
6. Applicable Language
Please note that where you have been provided with a copy of this Policy other than in the English language, such Policy is provided to you for information purposes only. The English version of this Policy is the version that is binding on Coverdeal Holdings Limited at all times.