Leverage and Margin Policy


Trading CFDs involves a significant risk of loss

Preface

As per the Circular C168 of CySEC issued pursuant to the Q&A of the European Securities and Markets Authority about the provision of CFD’s and other speculative products to retail investors. Centralpot Trading Ltd. hereinafter called ‘’the Company’’ has proceeded with the appropriate measures to ensure compliance with the above-mentioned Circular.

Scope and Vision

The Leverage and Margin policy sets out the leverage and margin latitude when you engage trading in contracts for differences (“CFDs”) and leveraged products. The Company shall establish what leverage ratio shall be appropriate for you by using an “Appropriateness assessment" during the stage of the account opening. The Appropriateness assessment it is a set of questions which provides the Company with the fundamental information to identify your Financial situation, knowledge and experience in trading complex financial products like CFDs, investment objectives and risk tolerance. Upon completion of the Appropriateness assessment your investment profile will be constructed and the Company shall provide you with the appropriate leverage ratio that reflects your investment profile.

Company’s Obligation

The Company shall take all the necessary measures to protect the client from aggressive leverage practice by ensuring that the client will be given the appropriate leverage which is suitable for his experience and financial situation.

The Company shall take all the necessary measures to comply with new and/or existing requirements of the Commission and/or of any other Competent Authority in regards to regulatory requirements for Leverage practices and investors protection.

The Company shall provide the client with all the information in regards to leverage and margin requirements.

In the cases were regulatory caps may arise and/or exist in other Authorities, the Company shall reduce the leverage ratio without prior notice in cases where it cannot be otherwise and in order to comply with the Laws and Regulations. In consideration of the changes, it shall be requested for the existing clients to be re-assessed.

Client’s Obligation

The Company shall rely on the information provided by yourself in regards to your knowledge, experience, financial situation and investment objectives.

You acknowledge that our assessment of your use of our leverage ratios is performed based on the information and documents provided by you, and you confirm the truthfulness, correctness and completeness of such information.

You acknowledge that we may rely upon such information and that you are responsible for any damages or losses which may result from any inaccuracies. You can revisit your appropriateness assessment at any time and evaluate your suitability level to determine whether there has been a change to your experience, trading objectives and/or financial situation.

It shall be your responsibility to ensure that you understand how Margin requirements are calculated.

The Company reserves the right to request for you to provide adequate documentation and/or to demonstrate that the changes to your investor profile are evident and it shall be your responsibility to provide the Company with any supporting documentation which will be deemed necessary to allow the Company to determine whether your suitability classification can change and if your leverage ratio can be revised.

Suitability Level and Leverage Ratios

For retail clients, a default leverage level of 1:50 applies. Unless the retail client has been opted to change this default leverage level to a different ratio and he has been classified suitable to do so.

The default leverage level of 1:50 may not apply for professional/institutional clients as they possess the experience, knowledge and expertise to make their own investment decisions and properly assess the risk that they incur.

A scoring system has been developed internally to classify retail clients as follow.

Classification Leverage Ratio
a.Unsuitable Up to 1:50
b.Low Suitability Up to 1:100
c.Medium Suitability Up to 1:200
d.High Suitability Up to 1:200
  • Unsuitable Classification: For retail investors where the scoring has been recognized as unsuitable, a leverage of 1:50 shall apply. As the assessment of the knowledge and experience suggests that the client does not possess certain knowledge and experience in trading in complex financial instruments, like CFDs.
  • Low Suitability: For retail investors where the scoring has been recognized as Low Suitability, a leverage of 1:100 shall be offered. As the assessment of the clients’ knowledge and experience suggests that the client possess sufficient expertise, knowledge and experience in trading in complex financial instruments, like CFDs. The clients have the option to remain with the default.
  • Medium Suitability: For retail investors where the scoring has been recognized as Medium Suitability, a leverage of 1:200 shall be offered. As the assessment of the clients’ knowledge and experience suggests that the client possess satisfactory expertise, knowledge and experience in trading in complex financial instruments, like CFDs. The clients have the option to remain with the default.
  • High Suitability: For retail investors where the scoring has been recognized as High Suitability, a leverage of 1:200 shall be offered. As the assessment of the clients’ knowledge and experience suggests that the client possess satisfactory expertise to apprehend that leveraged products are designed for short term trading and carry certain amount of risk when the positions are taken with higher leverage and/or in volatile market conditions. The clients have the option to remain with the default.

Note that the scoring is updated automatically upon actions that are registered in the trading platform by you.

Note that certain jurisdictions apply a cap on leverage ratios irrespective of any retail clients’ categorization. For example, in Poland, a leverage ratio of 1:100 applies.

CFDs associates with underlying asset classes and financial instruments. The table below sets out the leverage levels per asset class and suitability classification.

Asset Class Leverage Ratios*
Unsuitable Low Suitability Medium Suitability High Suitability
Forex Up to 1:50 Up to 1:100 Up to 1:200 Up to 1:200
Commodities Up to 1:50 Up to 1:100 Up to 1:200 Up to 1:200
Stocks Up to 1:20 Up to 1:20 Up to 1:20 Up to 1:20
Indices Up to 1:50 Up to 1:100 Up to 1:200 Up to 1:200

* Subject to changes as shall be determined by us from time to time to reflect changes in the market conditions. Leverages are applied on an asset class basis or per financial instrument as it may determine at our discretion. The Company shall inform in advance the client in relation to the changes where feasible. The leverages outlined here describe the thresholds per asset class and aren’t necessarily indicative to all financial instruments within the asset class. The applicable leverage ratios can be found at the trading platform under asset details.

Note that If the leverage ratio associated with the financial instrument is lower than your investment profile leverage, established by the Appropriateness Assessment. The financial instrument leverage will be considered as the applicable ratio. For example, on shares a leverage of 1:20 applies.

Leverage and Margin Trading

To open a transaction in contracts for differences (“CFDs”) and leveraged products, you undertake to provide the Initial Margin in your Trading Account. To keep a Transaction open, you undertake to ensure that the equity (current balance including P&L of all open positions) in your Trading Account equals or exceeds the Maintenance Margin. You acknowledge that the Margin for each Instrument differs and the Company has the right to change the Margin Requirements from time to time providing you with the appropriate notice. The Margin Requirements for each type of Instrument is available on our trading platform and it is your responsibility to check that you comply with the Margin Requirements always.

“Leverage” enables you to command positions that exceed the value of your equity. Any time you use a financial instrument such as a CFD or leveraged products to make an investment that exceeds the value of your capital, you are using leverage. Leverage is expressed as a ratio. The Company offers its clients leverage from 1:20 (20 times the amount invested) to1:200 (200 times the amount invested) depending on the asset being traded and your suitability classification.

Leverage can be also expressed in percentage and can be referred as the initial margin requirement. For example, a leverage of 1:20 expresses an initial margin requirement of 5% and a leverage of 1:200 expresses an initial margin requirement of 0.5%.

The leverage is specific for each financial instrument and can be found under asset details in the trading platform.

For example, let us assume that you want to enter a Forex position as follow; Buy 100,000 EURUSD and the contract is leveraged on a 1:200 ratio or alternatively can be expressed as an initial margin requirement of 0.5% of the national value.

What is the initial margin requirement you would need to place the trade?

Your initial margin requirement can be calculated as follow: (€ 100,000 * 0.5%) = € 500 you would require a capital of €500 to commence a trade of 100,000 EURUSD. Before leverage was available you would have needed the whole € 100,000 in margin to place that trade.

The only requirement for this privilege is that you maintain the required capital as margin in your account so that this position can be maintained. Now let us take a closer look at margin.

“Initial Margin” can be thought of as the capital that is required when using leverage. The exact amount required is dependent on the size of the position and the leverage which is being used. Margin is there to guarantee the position you have opened in case it goes against you. Initial margin requires that the whole margin is available in your account before a position is opened then it reverts to requiring a maintenance margin.

“Maintenance Margin” is the amount currently used to maintain your open positions. In order to keep your open position/s active, you must ensure that your equity exceeds the maintenance margin level. Otherwise the position will automatically close.
Can also be expressed as the minimum capital you must have in the account so that you do not receive a margin call/stop out.
The maintenance margin level requirement is specific for each financial instrument and can be found under asset details in the trading platform.

For example, let us assume that the maintenance margin requirement for EURUSD is 0.25% of the national value. hence a trade amount of € 100,000 requires a minimum capital of € 250 in your equity to maintain the position open.

“Available margin” Your available margin is the amount you have in your trading account which is not currently being used to maintain any positions; this amount can be used to initiate the opening of further trades. If your available margin is less than the initial margin required to open additional trades, the trades will not be opened. Available margin is calculated as equity less the maintenance margin of your open positions.

For Example, if we have an equity of € 1000 in our account, we would have € 750.00 (1000-250) in available margin and can only open positons whose initial margin requirements are equal to or less than € 750.00

“Equity” Your equity is your trading account balance plus or minus the profits or losses from any open positions you have.

“Balance” Is the amount of money held in your account excluding P&L of open positions.

“Margin usage” is the percentage of your equity currently being used as maintenance margin and is calculated as maintenance margin divided by equity multiplied by 100.

In our example this would mean our margin usage at the time of opening is at 25.00% (€ 250.00/ €1000.00*100). if this figure increases above 100% it means that you don’t hold sufficient equity/capital to cover the maintenance margin requirement and the system will commence closing out of positions.

Negative Balance Protection

A negative balance protection is offered to all our clients. This mean that you will not sustain any losses that exceed the capital you invested with us.