Leverage Policy

Leverage Policy

1. Introduction

Leadcapital Markets Ltd (the “Company”, or “LCM”) has established a leverage policy (hereinafter, the “Policy”) which applies to all its retail customers. The purpose of this Policy is to set out the leverage practices of the Company in order to increase investor protection.

Leverage is the ratio of the transaction size to the actual investment used for margin. Leverage allows a client to trade without putting up the full amount. Instead a margin amount is required. For example, 50:1 leverage, also known as 2% margin requirement, means $2,000 of equity is required to purchase an order worth $100,000. Leverage increases both upside and downside to risk as the account is now that much more sensitive to price movements.

 

2. Scope & Applicability

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.

Leverage acts as a modifier on an account. Not only does it enhance potential profits, but it also enhances potential risks; it is for nearly all intents and purposes like trading with a much larger account. However, there is one major difference, and understanding this difference is critical to success. An account’s losses can never exceed its cash balance.

 

3. Our Commitment

Treating Customers Fairly is central to our corporate culture and ethos.

We have a duty to act honestly, fairly, professionally and in the best interests of our clients when dealing with them.

In relation to Leverage and Margin, we are required:

a) To set leverage levels that reflect your knowledge and experience in trading in complex financial instruments like CFDs given that trading with leverage and margin is a key characteristic of trading in CFDs;

b) To have regard to our duty to treat you fairly by avoiding aggressive leverage practices towards you;

c) To have regard to the underlying performance fundamentals of the financial instrument on which the CFD is based, including historic volatility, depth of market [liquidity and trading volumes], market capitalization of the issuer and country of issuer of the underlying financial instrument, our ability to hedge market risk and the general political and economic environment. We adjust and calibrate the above variables in determining the leverage levels we offer for asset classes or financial instruments.

d) Given that we effectively provide the leverage for which you trade, to have regard to our own risk management appetite and risk bearing capacity and to have in place policies, procedures and practices to manage our (primarily) market risk emanating from such leverage and margin trading by our clients;

e) To apply regulatory requirements and caps as set by CySEC or any other regulator in any jurisdiction we offer our services to.

 

4. Procedures & Controls

Considering the complex and risky instruments offered, the Company introduced to the potential clients in an objective manner a test to assess the client’s financial experience and knowledge with a view to determining whether specific financial products are appropriate to the client.

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.

Paying attention in how to consider information, the Company will proceed based on the scoring with the below leverage where the client has the possibility to choose.

APPROPRIATENESS TEST SCORING
INEXPERIENCED INTERMEDIATE EXPERIENCED
DEMO ACCOUNT ONLY 1:50 AVAILABLE OPTIONS
1:50
1:100
1:200
1:300

 

For clients with low scoring the best practice would be the for client not to proceed, and we offer the Demo Account only for these clients.

As a new trader with intermediate score, we consider limiting the client’s leverage to a maximum of 1:50. Trading with too high a leverage ratio is one of the most common errors committed by new forex traders. Therefore, until the client becomes more experienced, LCM strongly urges the client to trade with a lower ratio.

All the information obtained about the Company’s clients are used to act in a manner which is in the client’s best interests. Please note that certain jurisdictions apply a cap on leverage ratios regardless of the client categorization or Appropriateness Test score. The Compliance Department will assess the quality of the Company’s assessment of appropriateness on a monthly basis as well as identifying potential compliance issues by considering:

  1. the proportion of clients passing the appropriateness test;
  2. the proportion of clients not passing the appropriateness test, both where they did not demonstrate sufficient knowledge and experience and where there is insufficient information available to assess appropriateness;
  3. The proportion of clients proceeding to trade where they have not passed the appropriateness test.

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