Leverage Policy Introduction TFI Markets Ltd has established a leverage policy which applies to all its retail customers. The purpose of the policy is to set out the leverage practices of the Company in order to increase investor protection. The Policy is in accordance with: a) Circular C168 of the CySec b) The ESMA Questions & Answers relating to the provision of CFDs and other speculative products to retail investors under MiFiD. c) Notice of ESMA s Product Intervention Decisions in relation to contracts for differences and binary options Purpose and Applicability The policy applies to all retail customers who trade in the Company s products. The policy is based on the assessment of appropriateness of clients and potential clients and is aimed at limiting the available leverage for clients who may not understand the risk involved. Leverage can enhance potential profits but it also increases potential risks. However, an account s loses cannot exceed its cash balance (Negative Margin Protection). Policy The Company takes into account the following criteria when defining leverage and margin requirements for financial instruments: Liquidity: Margin requirements for less liquid instruments are generally higher than margin requirements for more liquid instruments. Liquidity is measured as the ratio of the currency s spread to the currency s price. Volatility: Historical volatility is the volatility of a financial instrument over a given period of time. Higher historical volatility results to higher margin requirements. Historical volatility is measured by the Standard Deviation of each currency from historical prices.
Expected economic/geopolitical events may result in increase of the expected volatility which in turn results in increased margin requirements, especially where extreme/unpredictable movement may be expected. The Company reserves the right to increase margin requirements with little or no notice, up to 100%, where increased volatility is expected. Factors specific to the financial instrument: Factors specific to the financial instrument such as ceiling or floor by the relevant Central Bank are taken into account Hedging capabilities: Where hedging capabilities are limited (i.e not all the Company s Liquidity Providers offer hedging in the specific instrument), then margin requirements are higher. Maturity: Margin requirements for financial instruments with shorter maturities are generally lower than for financial instruments with longer maturities (i.e FX CFDs Vs FX Forwards). Standard FX cfd s offered usually have a short dated maturity. In accordance with the above factors, the company assigns specific tiers for each currency offered. Margin requirements differ for each Tier. A list of currencies offered and their relevant Tiers can be found in the Appendix. Currency tiers are reviewed by the Risk Management Committee at least on an annual basis. CFDs TIER 1 CURRENCIES: The default leverage for Tier 1 currency pairs that will be applied to all clients trading FX CFDs will be 1:33, unless otherwise requested by the client. Leverage higher than 1:33 will only be available to Professional Clients. Retail clients may never lose more funds than those deposited in their trading account (i.e negative balance protection) TIER 2 CURRENCIES: For Tier 2 currency pairs the minimum leverage that will be applied will be 1:20. Leverage higher than 1:20 will only be available to Professional Clients. TIER 3 CURRENCIES: For Tier 3 currencies, the minimum leverage will be decided on a per currency level, based on the factors described above, the relevant leverage provided by the Company s Liquidity Providers and the Company s risk appetite towards the specific currency.
FX Forwards and Swaps Currencies are assigned into Tiers as per the Appendix. However margin requirements are not fixed and depend on the maturity of the relevant forward/swap. For Tier 1 Currencies, leverage higher than 1:10 will not be available for clients for whom the product is deemed not appropriate (for maturity 1 year or less) For Tier 2 Currencies, leverage higher than 1:7 (15%) will not be available for clients for whom the product is deemed not appropriate (for maturity 1 year or less) For Tier 3 Currencies, leverage will be assigned on a case-by-case basis, in accordance with the leverage provided by the Company s Liquidity Providers and/or the Company s risk appetite towards the specific currency. Other instruments (FX options, Commodity CFDs etc.) The Risk Management Committee shall decide the leverage for such instruments on a case by case basis. Key Terms Leveraged Trading: It means that clients can trade amounts significantly higher than the funds they invest. Funds invested are also referred to as margin. High leverage significantly increases potential profits but also can significantly increase potential losses. Leverage can also be expressed in percentage terms, referred to as Margin requirement. For example, a leverage of 1:20 is a margin requirement of 5%. Example: If the leverage is 1:20 and the client has a balance of 1,000, then the client can open positions of up to 20,000 Lot: Lot is the size of 1 contract. 1 lot in a currency-pair equals 100,000 of the contract currency. 1 lot in metals (Gold (XAU) or Silver (XAG)) equals 100oz of the relevant metal. Example: 1 lot EUR/USD means 100,000 EUR 1 lot XAU/USD means 100oz of Gold Required margin: Required Margin is also referred to as Initial Margin Requirement. Initial Margin is the amount the client will have to pay as collateral in order to open and maintain a position.
Example: If you open a position of 1 lot (1 lot = 100,000) in EUR/USD at price 1.1754 and the leverage of the account is 1:20, then your margin requirement is: 1*100,000*1.1754*5%=$5,877 Used Margin: It is calculated by adding the Initial Margin Requirement for all the client s open positions. Equity: Equity is the value of the client s account. Equity equals the client s balance plus the unrealised profit or loss on the open positions. Margin Level: Margin Level is calculated as Equity/Used Margin. It is expressed in percentage (%) terms. The lower the Margin Level, the closer the account is to a margin call or close-out. Free Margin: Free margin is the amount available from you Equity to open new positions. It is calculated by subtracting the margin used for the currently open positions from the account s Equity APPENDIX 1 Currency Tiers CFDs Tier 1 Currency-Pairs Currency Pairs consisting of two of the following currencies, for which maximum leverage will be 1:33: EUR, USD, JPY, GBP, CAD Tier 2 Currency-Pairs For all other Currency Pairs, except the ones mentioned in Tier 3, the maximum leverage will be 1:20. Tier 3 Currency-Pairs For Silver (XAG) the maximum leverage will be 1:8 (12%)
APPENDIX 2 Currency Tiers Forwards/Swaps Currency Forwards Default Leverage Our Tier EUR 10% T1 JPY 10% T1 GBP 10% T1 CAD 10% T1 AUD 10% T1 DKK 10% T1 NZD 10% T1 SEK 10% T1 NOK 10% T1 CHF 15% T2 CZK 15% T2 PLN 15% T2 RON 15% T2 RUB 15% T2 HUF 15% T2 ZAR 15% T2