MiFID II is the European investment-services directive, applied through national law. It covers client information, assessment and order execution; it does not guarantee investment returns. Retail CFD leverage restrictions came through separate product-intervention measures under MiFIR. Identify the entity, service and product before deciding which rules cover an account.

What is MiFID II and who does it apply to?

Directive 2014/65/EU has applied since 3 January 2018. A directive requires national implementation, while the accompanying MiFIR is a regulation. A group’s license or a regulator’s logo is not proof that the entity in your agreement has permission to serve you. The UK now has its own domestic framework; FCA authorization alone does not provide an EU passport.

How does MiFID II differ from MiFID I?

MiFID II replaced the earlier directive and expanded the investment-services framework. For a client, the useful questions are practical: what information must the firm provide, what must it assess, and how will it execute an order? Historical descriptions of the reform should not be mistaken for the current consolidated rules.

What are best execution and cost transparency obligations?

Best execution considers price, costs and other relevant execution factors. It is not a promise of the best price on every tick. Read the execution policy and the effect of any specific instruction you give. ESMA’s 2024 statement distinguished the removal of RTS 28 publication duties from the continuing best-execution duty; the old reports were not the only way to demonstrate compliance.

Cost disclosures help distinguish expected charges from charges actually incurred. They do not prove that no hidden charge or reporting error can occur. Reconcile the reported period, cash amount and percentage basis. Do not deduct a spread again when the execution-price result already includes it.

How does client classification and product governance work?

Retail and professional treatment affect the applicable conduct rules. Some entities are professional clients by category; an individual’s elective classification requires assessment and a written procedure. The minimum criteria include two of three conditions: significant relevant-market trades averaging 10 per quarter over four quarters, a portfolio including cash and financial instruments above €500,000, or at least one year in a relevant financial-sector professional role. Meeting two numerical criteria alone does not automatically complete reclassification. Compare retail, experienced and professional clients.

Appropriateness under Article 25(3) concerns relevant knowledge and experience. Suitability for advice or portfolio management under Article 25(2) also covers financial circumstances, capacity for losses and investment objectives, including risk tolerance. Conditional execution-only exceptions exist for specified services and instruments. Neither assessment predicts the profit on a CFD.

Assessment scopes

Why the same client may face more questions

Scroll sideways to see the full diagram

Different assessment scopes under MiFID II Article 25For services within Article 25(3), appropriateness concerns relevant knowledge and experience. Suitability for investment advice or portfolio management under Article 25(2) also covers financial situation and ability to bear losses, plus investment objectives and risk tolerance. Explaining a CFD does not supply the other information.Questions depend on the serviceAppropriateness · Art. 25(3)Knowledge and experience ofthe relevant product or serviceSuitability · Art. 25(2)Investment advice or portfolio managementKnowledge and experienceFinancial position and loss-bearing capacityInvestment goals and risk toleranceExplaining a CFD does not replacedetails of needs and financial circumstances.

In this fictional EU example, a client can explain a CFD but has not supplied investment goals, the date of a planned expense or financial circumstances. Product knowledge answers only part of the profile. Advice requires information about the other areas too; the example does not determine the assessment's outcome. The scopes follow MiFID II Article 25(2) and (3) and ESMA's explanation of financial information for suitability.

Simplified EU assessment scopes, rather than a questionnaire scoring system or individual legal interpretation. Article 25(4) allows conditional exemptions for specified execution services and instruments; this diagram does not assess them. Appropriateness is neither a guarantee of returns nor client identification, and these EU scopes are not presented as universal rules for every jurisdiction.

How do ESMA leverage limits connect to MiFIR?

ESMA used MiFIR product-intervention powers for temporary retail CFD measures in 2018. Current coverage requires the relevant national measure and client classification. A limit on permitted leverage is separate from actual account exposure and from negative-balance protection. Review the 1:500 leverage trap without treating the offered ratio as proof of an account’s entire legal status.

What are the most common misconceptions about MiFID II?

A foreign registered address does not automatically confer permission to solicit residents elsewhere. Nor does it prove that every local or contractual safeguard is absent. Check permissions, the contracting entity and cross-border scope. Our guide to what happens to your money if a broker fails distinguishes operational protections from compensation eligibility.

Supervision is not an assurance of profitability. Professional classification can remove statutory retail safeguards, but a provider may offer contractual protections. Read the warning of protections and compensation rights that may be lost; do not assume that a higher leverage offer outweighs those changes.

What to do with this knowledge about MiFID II?

  1. Compare the entity named in the agreement with the official authorization register and permissions for your country.
  2. Read cost and execution disclosures. Separate actual charges from modeled future costs.
  3. Confirm client status and the scope of any statutory or contractual protection.
  4. Compare local versus foreign brokers using their actual account terms and the market regulation overview, rather than a brand-level assumption.