UK's FCA to clamp down on CFD trading

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The UK finance regulator the FCA has spread better in their sights

The FCA have announced they will be looking at the CFD market after analysis showed that 82% of customers lost money, with and average loss of £2200 per year, on CFD products.

They have said that clients do not have enough understanding of CFD's and how they are structured, or financed by brokers, and want to put in place measures so that investors are better informed.

The FCA propose to;

  • Make sure there are standardised risk warnings given to customers
  • Get brokers to publish win/loss ratios
  • Cap the proportion of "borrowed" funds that can be used by inexperienced clients
  • Stop brokers from using account bonuses to promote CFD products

They are currency in a consultation phase until March and will release a statement after.

On the face of it, it looks like retail traders could be seeing a reduction in leverage offered, and a rise in margins.

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Major changes planned for the UK CFD market

This week saw the announcement of major changes to CFDs and spread betting

The changes came from the FCA in the UK and have far reaching consequences for the retail market in particular. Shares in companies like IG and CMC tumbled on fears that trading volumes will be reduced significantly.

As part of its deliberations the FCA have asked traders to reply to the following questions:

  • Q1: What investment need(s) do CFDs fulfil for retail clients and would they be disadvantaged if they no longer had access to these products?
  • Q2: Do you agree with our proposal to require enhanced disclosures for CFD products?
  • Q3: Do you agree with our proposal to require CFD firms to disclose the percentage of client accounts that are in profit or loss over the previous calendar quarter and over the last 12 months?
  • Q4: Do you agree with the proposal to limit the risks of CFDs by taking steps to limit leverage for retail clients?
  • Q5: Do you agree with the proposal to adopt different leverage limits for inexperienced and experienced retail clients?
  • Q6: Do you agree with the proposed margin limits for inexperienced clients and experienced retail clients?
  • Q7: Do you agree with the proposal to set a margin close out limit of 50% of initial margin required? In particular, we welcome feedback on the detailed drafting of this rule and whether it is compatible with standard market practices.
  • Q8: Do you agree with our proposal to ban bonus promotions or other incentives to open accounts or trade?
  • Q9: What investment need(s) do binary bets fulfil for retail clients, and do you agree with the risks we have identified?
  • Q10: What are your views on limiting the marketing of binary bets to some retail clients?
  • Q11: What are your views on the potential use of product intervention powers under MiFID II to restrict specific features of binary bets or place limits on the distribution or sale of these products for retail clients?
  • Q12: Are there any alternative policy measures that we should consider to address our investor protection concerns in relation to binary bets?
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