Leverage and CFDs
Contracts for difference and similar margined derivatives let retail traders take positions far larger than their account balance. They are the dominant retail-trading product in Europe — and the reason regulators intervened.
How leverage changes the maths
Leverage multiplies both the position and the cost of holding it. It does not improve the probability of being right. If a strategy has negative expectancy after costs, leverage increases the size of each loss and shortens the time to account depletion. This is why margin-called accounts cluster among the most heavily leveraged users.
The regulatory record
ESMA capped retail CFD leverage across the EU in 2018 specifically because of documented retail losses, and required brokers to publish their loss rates. Those disclosures still show 70-85% of retail accounts losing money. CFDs remain banned for retail investors in the United States.
Who is on the other side
Many CFD brokers act as the direct counterparty to client trades, meaning client losses can be broker revenue. That structural conflict is examined under broker economics.
Frequently asked questions
Is high leverage ever an advantage for retail traders?
Only for a trader with a verified positive expectancy after costs, which the data suggests is a very small minority. For everyone else it accelerates the loss.
Why are CFDs banned in the US?
US regulators do not permit these over-the-counter leveraged contracts for retail investors, largely on investor-protection grounds.
What loss rate must EU brokers publish?
The percentage of retail investor accounts that lose money trading CFDs with that provider. Published figures typically fall between 70% and 85%.
Read the whole argument
Day Trading Kills traces the leverage industry, its regulation and its outcomes in detail.