How does CySEC restrict CFDs and binary options for retail clients?

MiFIR Article 42 lets a national authority prohibit or restrict the marketing, distribution or sale of financial instruments that raise significant investor protection concerns. CySEC used it in 2019, after ESMA's temporary EU-wide measures, to adopt permanent national rules for two products on which retail clients were losing money: contracts for difference (CFDs) and binary options. Both measures also prohibit knowingly and intentionally taking part in activities whose object or effect is to get round them.

The two measures are different in kind. CFDs may still be sold to retail clients, but only with five protections built in. Binary options are banned for retail clients altogether, apart from two narrow exceptions.

All five conditions must be met. First, initial margin protection: the client must post a minimum initial margin set by the type of underlying, which caps leverage; it is 3.33% of the notional value for pairs of major currencies, 5% for the main stock indices, other currency pairs and gold, 10% for other commodities and other stock indices, 20% for individual shares and other underlyings, and 50% for cryptocurrencies. Second, margin close-out protection: the provider closes one or more of the client's open positions, on the terms most favourable to the client, when the funds in the CFD account plus net unrealised profits fall below half of the total initial margin for those positions. Third, negative balance protection: the client can never lose more than the funds in the CFD account.

Fourth, the provider may not give retail clients any payment, monetary benefit or non-monetary benefit linked to CFDs, other than realised profits; information and research tools about CFDs are allowed. Fifth, all marketing and information must carry a prominent risk warning, including the percentage of the provider's retail accounts that lost money, recalculated every three months over the previous twelve.

The CFD measure covers a CIF acting in or from Cyprus towards retail clients who live in Cyprus, in a Member State that has no national CFD measures of its own, or in a third country; where the client's Member State has its own measures, those apply instead. Firms from other Member States and third countries are covered when they deal with retail clients in Cyprus. An amendment in force since 5 September 2025 rewrote the 10% category so that it expressly covers any commodity other than gold as well as stock indices not listed at 5%; the 2019 text referred only to commodity and stock indices.

A binary option is a cash-settled derivative that pays only at close-out or expiry: one predetermined fixed amount if a condition about the underlying is met and another if it is not, either of which may be zero. Marketing, distributing or selling such options to retail clients is prohibited. The ban applies to CIFs, with no test of where the client lives, and to firms from other Member States or third countries acting in Cyprus; the exam material describes it as protecting Cyprus residents.

The ban does not apply in two cases. The first is a binary option whose lower fixed payout is at least equal to the client's total payment for it, including commissions and other costs, so the client cannot lose money. The second is a binary option that meets three conditions together: it runs for at least 90 calendar days from issue to expiry; a prospectus approved under the prospectus rules is available to the public; and the provider carries no market risk while the option is outstanding and neither it nor its group makes any profit or loss on it other than commissions and charges disclosed in advance.