Ahead of measures agreed on 23 March 2018, the European Securities and Markets Authority collected analyses from national regulators across EU jurisdictions covering retail contract for difference accounts.
Those analyses found that between 74 and 89 percent of retail accounts typically lost money, with average losses per client ranging from about EUR 1,600 to about EUR 29,000 depending on the jurisdiction and the period.
The resulting measures included leverage limits, mandatory negative balance protection, a prohibition on certain incentives, and a requirement that every firm publish its own client loss percentage in its marketing.
Now the finding.
The average loss per client was a real number in a real currency, ranging up to about EUR 29,000, which for many households is not a percentage of a portfolio but a car, a deposit or a year of savings.
Risk capacity is not a fraction of your net worth.
It is the amount whose complete loss changes nothing you have already committed to.
This takes about twenty minutes and produces one number. Per O100-02 you have stated what you are here for, and this states what it may cost.
The test
If this amount went to zero tomorrow, what in my life changes?
If the answer is nothing, the number is inside your capacity. No bill is late, no commitment is broken, nobody else is affected, and no decision you have already made becomes impossible.
If the answer includes rent, a deadline, a dependant or a debt, the number is too high. Per the autopsy the population figure runs to about EUR 29,000 in some jurisdictions, which is inside that description for most households.
And the test is about commitments rather than feelings. Per O100-04 your sense of how much you can tolerate is a confidence judgement, and per the course autopsy those are unreliable.
Part one: the subtraction.
Start from liquid assets, being what you could convert this month without penalty.
Subtract the emergency reserve. Whatever covers your fixed costs for the period you would need to replace an income.
Subtract committed capital. Anything already promised to a purchase, a debt repayment, a tax bill or another person.
Subtract what you would need to not change any decision you have already made.
What remains is the ceiling, and per the test above it is a ceiling rather than a target.
Part two: the arithmetic that makes a large loss worse than it looks.
A drawdown of d requires a gain of d divided by one minus d to recover.
20 percent needs 0.20 / 0.80 = 25 percent
50 percent needs 0.50 / 0.50 = 100 percent
80 percent needs 0.80 / 0.20 = 400 percent
So the loss and the recovery are not the same size, and per the autopsy 74 to 89 percent of accounts in the population studied lost money at all.
Part three: what the ceiling is not.
Not a percentage somebody suggested. Per part one it comes from your commitments, which nobody else knows.
Not the amount you would like to deploy. Per O100-04 that figure is a confidence judgement.
And not a number that rises because the last outcome was good. Per part two a rise after a gain is the mechanism that converts a survivable loss into a material one.
Part four: recording it.
Write the figure and the date.
Exposure grows gradually, by adding a little after a good month and by not reducing after a bad one. Per part three a recorded number turns that into a visible breach on a date rather than something noticed in hindsight.
Twenty minutes, one number, and per part four it is the only defence against gradual drift.
Derive it by subtraction, per part one, from liquid assets minus reserve minus commitments.
Test it against the question, per the section above: if this went to zero tomorrow, what changes. If anything does, reduce it.
Then write the figure, the date and the three subtractions. Per part four the derivation matters as much as the total, because next year's version is computed the same way from different circumstances.
And treat exceeding it as an event. Per R403-06's circuit breaker argument, a threshold with no action attached is a note, and per part three the moment it is exceeded is the moment it will feel most justified.
Per the autopsy, average losses per client ran to about EUR 29,000 in some jurisdictions, among a population where 74 to 89 percent of accounts lost money at all.
I will only risk what I can afford to lose, so I do not need to calculate a number.
The phrase is correct and per part one it is not a number until you subtract something.
What is true. The principle is exactly right, and it is the principle this lesson is implementing. Nobody is being asked to adopt a different one.
Why it needs a figure. Per part four, exposure grows gradually and the phrase accommodates any amount, because what feels affordable rises with the balance. A number written on a date does not move on its own.
And the subtraction produces surprises. Per part one, committed capital and the emergency reserve are usually larger than people estimate before writing them down, so the ceiling is frequently lower than the intuition it replaces.
Nor does the phrase survive a good period. Per part three, the specific failure is raising the amount after a gain, which per part two is what turns a 20 percent setback into an 80 percent one.
So per P6 the accurate framing: the principle is right and a principle without a figure cannot be breached, which means it also cannot be kept. Per the callout, write the number, the date and the derivation.
Risk capacity is not a percentage of net worth and not the amount you would like to deploy. It is the amount whose complete loss changes nothing you have already committed to, and the test is one question: if this went to zero tomorrow, what in my life changes? If the answer includes rent, a deadline, a dependant or a debt, the number is too high. Derive it by subtraction from liquid assets, taking out the emergency reserve, capital already committed, and whatever you need in order not to reverse a decision you have already made. Then note that losses and recoveries are not the same size: 20 percent needs 25 back, 50 percent needs 100, and 80 percent needs 400. Across the retail accounts ESMA's member regulators examined, between 74 and 89 percent lost money, with average losses per client from about EUR 1,600 to about EUR 29,000. Write the figure, the date and the three subtractions, because exposure grows gradually and only a recorded number makes a breach visible.