Introducing talent-linked pricing for traders (from $3 per lot round trip)

26 July 2018
Juan Colón

We are introducing D-Score based pricing where talented traders will trade from $3 per lot round trip.


Background

As you know by now, the ESMA intervention measures will apply from August 1st.

We outlined what we thought was the most likely impact of the intervention in advance of ESMA clarifying details of the implementation.

ESMA has since published a Questions & Answers (Q&A) document which sheds some light on the specific questions. (Note that ESMA announces the Q&A as a dynamic document subject to changes as day to day experience with the intervention poses more questions).


Restriction of incentives to trading

It turns out ESMA’s definition of “incentives to trading” is wider than we originally considered. Question 5.5. in ESMA’s Q&A document is as follows:

Question: What is considered a “monetary benefit” in relation to the prohibition made to investment firms providing retail clients with a payment, monetary or non-excluded monetary benefit in relation to CFDs?

 

Answer: The CFD Decision prohibits any form of monetary and non-monetary benefits that aim at incentivising retail investors to trade CFDs or to trade larger volumes of CFDs. The scope of the prohibition includes monetary benefits such as, but not limited to, the offering of bonuses in relation to the opening a new account or the offering of rebates on fees, including volume based rebates, charged by an investment firm to its retail clients.

However,

Monetary benefits that do not constitute an incentive for retail investors to trade CFDs or to trade larger volumes of CFD, such as lower fees, not linked to volumes, for all retail clients (i.e. competition on price), are allowed.

Note that the very specific wording essentially prohibits our existing volume based rebate program for retail traders. We know rebates are a very important element for some traders: they can make the difference between profit and loss for high volume strategies!


Introducing talent-linked pricing

Every skilled, long-term trader with significant market expertise (#1 ESMA pre-requisite for “professionals”) is our lifeblood.

Alas MiFID rules (see 3.5.3 ) impose at least one of 2 further prerequisites, requiring:

  • One year of professional experience in the financial services sector requiring knowledge of the transactions envisages or
  • A financial instrument portfolio, defined as including cash deposits and financial instruments, exceeding EUR 500,000.

Luckily, the prohibition includes a waiver.

Monetary benefits that do not constitute an incentive for retail investors to trade CFDs or to trade larger volumes of CFD, such as lower fees, not linked to volumes, for all retail clients (i.e. competition on price), are allowed.

The 0-100 Darwinex Score (D-Score) is our approach to rating investable trading skill. It’s made up of 12 algorithms, none of which depends on trading volumes. This offers a clean & fair way to not handicap skilled traders caught in the regulatory change. This is why, from August 1st, we will adjust our pricing for skill, as follows.

talent-linked pricing for traders

From August 1st, 2018, retail customers will pay DMA market spread, plus if they have a D-Score:

  • Between 50-60: USD 2 commission per lot one-way (USD 4 round-trip)
  • Above 60: USD 1.5 commission per lot (USD 3 round-trip)

How will it work in practice?

We will update these Questions and Answers dynamically based on your questions.

talent-based pricing for traders

That’s it for now, hope this makes sense.

We will respond to any comments to this blog post, and update the above table to clarify any recurring questions.