ESMA Enforces Leverage Limits on Crypto Derivatives, Impacting EU Trading

The European Securities and Markets Authority (ESMA) has tightened regulations on Leveraged crypto products, mandating compliance with existing EU rules for contracts for differences (CFDs). Perpetual futures and similar derivatives must now adhere to strict leverage limits, risk disclosures, and investor protection measures, regardless of their branding.

Retail traders face heightened safeguards as platforms are required to implement automatic trade closures, negative balance protection, and bans on incentive schemes. The crackdown targets products that enable speculative trading with borrowed funds, emphasizing their classification as CFDs due to their cash-settled nature.

ESMA's MOVE reflects growing scrutiny of crypto's volatile derivatives market, where inexperienced investors often bear disproportionate losses. Exchanges offering such products must now restrict access to qualified traders and eliminate promotional tactics that downplay risks.