MiFID II explained: EU broker regulation definition

By Ken Chigbo, Founder, KenMacro. Published 2026-05-13.

What is MiFID II?

MiFID II is a regulatory framework adopted by the European Parliament that replaced the original MiFID from 2007. It applies to investment firms, market operators, data reporting providers and third-country firms providing services in the EEA. The directive expands pre-trade and post-trade transparency, tightens conduct standards, mandates trade reporting to approved publication arrangements, and introduces stricter product governance obligations. National regulators such as BaFin, AMF, CySEC and the Central Bank of Ireland implement and enforce its provisions locally. Retail traders encounter MiFID II most visibly through leverage limits, negative balance protection and standardised risk disclosures imposed by ESMA on CFD products.

How traders use MiFID II

Retail traders inside the EEA trade under MiFID II by default when using an EU-regulated broker. The framework caps CFD leverage at 30:1 on major forex pairs, 20:1 on non-major pairs and major indices, 10:1 on commodities other than gold, 5:1 on individual equities and 2:1 on cryptocurrencies. Brokers must provide negative balance protection, close positions when margin falls below 50 percent of initial requirement, and publish standardised loss disclosures. Institutional desks use MiFID II differently: professional client categorisation removes leverage caps but waives certain protections. The desk regularly sees traders relocate to FCA, ASIC or offshore entities of the same broker group to access higher leverage, accepting the trade-off in regulatory recourse. Best execution reporting under RTS 27 and 28 also lets traders compare venue quality.

Common misconceptions about MiFID II

Many retail traders assume MiFID II is a single law. It is actually a directive plus a regulation (MiFIR), implemented through delegated acts and national transposition, so enforcement varies between member states. Another misconception is that MiFID II banned CFDs. It did not. ESMA used its product intervention powers under MiFIR to restrict CFD marketing and impose leverage caps, which member states then made permanent. Traders also confuse MiFID II with MiFID I; the second iteration significantly widened scope to cover commodities, structured deposits and algorithmic trading, and introduced the systematic internaliser regime.

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Frequently asked

Does MiFID II apply to UK brokers after Brexit?

The UK onshored MiFID II into domestic law via the European Union (Withdrawal) Act, so FCA-regulated firms operate under a near-identical framework known as UK MiFID. The FCA has since diverged on some details, including research unbundling rules and certain reporting thresholds, but the core obligations on best execution, product governance and leverage caps on CFDs remain in place for UK retail clients.

Can I avoid MiFID II leverage caps?

Two routes exist. First, qualifying as an elective professional client by meeting two of three ESMA criteria: portfolio size above 500,000 euros, ten significant trades per quarter over the past year, or one year of relevant financial sector employment. Second, opening an account with the same broker’s non-EU entity, typically regulated in the Seychelles, Bermuda or Saint Vincent. Both approaches reduce protections, so the desk treats them as deliberate trade-offs rather than free upgrades.

What is the difference between MiFID II and MiFIR?

MiFID II is a directive, meaning member states must transpose it into national law with some flexibility. MiFIR, the Markets in Financial Instruments Regulation, applies directly and uniformly across the EU without transposition. MiFIR covers transparency, transaction reporting and third-country firm access, while MiFID II covers authorisation, conduct of business and organisational requirements. The two operate as a package and are usually referenced together when discussing the post-2018 regime.

Does MiFID II require brokers to report my trades?

Yes. Investment firms must report transactions in financial instruments to their national competent authority by the close of the following working day under Article 26 of MiFIR. Reports include client identifier, instrument, price, volume and timestamp. Retail clients are identified by national identifier such as a passport number or national insurance number. This data feeds market abuse surveillance and is not visible to other traders, but it is held by regulators for at least five years.

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