Our letter to ESMA

2 February 2018
The Market Owl

We’ve drafted a letter on behalf of the anonymous retail trader. We look forward to your amending as you see fit, and submitting to ESMA. If anyone feels like translating to languages other than English and Spanish, feel free to share in our Twitter account.


 *You may e-mail your own take to: CFECFDBO@esma.europa.eu

Dear ESMA,

Let me introduce myself.

I don’t work in the financial sector but I have carried out transactions, of significant size, in CFDs with an average frequency of 10 per quarter over the previous four quarters. I haven’t (yet) grown my portfolio bank account above 500 000 Euro, but I plan to. That makes me a “retail trader”: a law abiding, tax paying, financially literate citizen exercising a right to trade the markets.

I hear that ESMA plan on restricting trading CFDs on leverage – my passion and intended livelihood – and asked for my feedback, so here it is. I love CFD trading because:

  1. CFDs taught me how to win, as well as lose, trading financial markets
  2. CFDs let me freely go long and short in any underlying,
  3. CFDs let me better diversify my risk across underlyings than any other instruments,
  4. CFDs let me manage my risk, in trade sizes comfortably affordable to me at all times

Whatever measures you impose to restrict CFD trading restrict my rights. Furthermore, the measures you propose fail to adequately protect me. The fundamental problem is NOT my trading CFDs, but regulators allowing retail CFDs cleared over the counter (OTC).

OTC CFDs:

  1. Make me a second class citizen allowed to take, but not make, liquidity
  2. Divert and fragment liquidity from their underlying exchange traded markets,
  3. Are prone to intransparent market price finding, and therefore, market abuse,
  4. Are leveraged by systematic internalisers to acquire and churn inexperienced traders, reinvesting proceeds in a loss financed advertising spiral your measures identify, but fail to tackle at root

ESMA won’t protect all retail investors – experienced and inexperienced alike – until it regulates retail CFD contracts cleared on MiFID MTFs. No matter what alternative measures ESMA introduce, the CFD market will structurally fail to self-regulate as long as regulated and unregulated OTC providers directly profit from customer losses.

Exchange cleared CFDs will grant retail traders the same transparency and trading rights enjoyed by all participants on regulated stocks and futures on exchanges. Markets will remain tough, but self-regulate towards transparency and fairness. Moreover it will incentivise retail providers to educate winners, to profit with winners, instead of advertising to attract new losers.

So here’s my suggestion:

  1. By all means protect inexperienced investors as you see fit, BUT
  2. Don’t restrict my economic rights as a tax paying, financially literate individual,

Grant me the investor protection, transparent conditions and fairness I enjoy in all other properly regulated markets, by clearing my CFDs on MiFID MTFs.

Best regards


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