This policy aims to set out the procedures and factors followed by Triangleview Investments Ltd (hereafter the “Company”) in order to identify how leverage ratios are established. This policy will be reviewed and approved by the Board of Directors regularly and at least annually.
Contracts for Differences (“CFDs”) and Foreign Exchange (“Forex”) are leveraged products. Leverage enables clients to magnify the potential profits of a trade but it also magnifies the client’s potential losses due to the fact that losses incurred are possible to be higher than the capital originally invested. For this reason CFDs and Forex are considered to be riskier products than non-leveraged instruments. The leverage component also adds an additional level of complexity because many retails investors may face difficulties in understanding how leverage impacts the risks involved when trading CFDs or other similar leveraged products.
2. Factors to be taken into account prior establishing the Company’s leverage ratio
The Company takes into consideration the following prior providing leverage to its retail clients:
(i) The capital base and financial strength of the Company, as calculated and monitored based on the Company’s Capital Adequacy;
(ii) The risk appetite and risk management of the Company;
(iii) The asset class and instrument characteristics, including the liquidity and trading volume, volatility, market cap, country of issuer, general economic climate and geopolitical events;
(iv) Clients’ assessment of appropriateness and financial knowledge.
3. Use of Leverage
The Company takes note of the CySEC Circular C271 regarding the ESMA product intervention measures on Binary Options and CFDs as published in the Official Journal of the European Union relating to the provision of CFDs. The Company implements the below procedures in order to mitigate the potential conflict of interest between the Company and retail client stemming from the use of leverage:
a. Capital Base and Financial Strength of the Company:
The Company shall always comply with the Capital Requirements regulatory framework and the leverage ratios allowed to its Clients shall not inhibit in any way the Company from complying with the minimum capital requirements as set in the relevant regulatory framework.
b. Risk appetite and risk management of the Company
The Company shall follow the risk management policies and procedures which identify the risks relating to the Company’s activities, processes and systems when it will be setting the percentage of the leverage ratio allowed to its Clients. The Company shall ensure that the leverage ratios allowed to Clients are always in line with the Company’s risk appetite and risk management policy. A standardized risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.
c. Asset class and instrument characteristics
Asset class and instrument characteristics are taken into account when determining the leverage ratios allowed to Clients.
d. Clients’ KYC and financial knowledge
The Company takes into account the clients’ knowledge and experience prior allowing a client to use leverage. More specifically all clients as a default receive the lower leverage limit which is 1:30 depending on the underlying asset of their position.
Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, vary according to the volatility of the underlying asset as shown below: • 30:1 for major currency pairs; • 20:1 for non-major currency pairs, gold and major indices;
• 10:1 for commodities other than gold and non-major equity indices;
• 5:1 for individual equities and other reference values and
• 2:1 for cryptocurrencies.
e. Negative Balance Protection
The Company has established a negative balance protection policy which in the event that a negative balance occurs in the clients’ trading accounts due to stop out and/or extremely volatile market conditions, will make a relevant adjustment to cover the full negative amount.
The negative balance protection is calculated on a per account basis. This will provide an overall guaranteed limit on retail client losses.
f. Client Groups
The Company may allow different leverage ratios to different client groups, in particular to different groups of retail clients (country, economic profile, financial instruments), to identify behaviors that may not be in the best interests of retail clients. Furthermore, in case the Company identifies such behaviors, it might change the allowed leverage ratio to these group of clients in order to be for their best interest.