The big spread betting and CFD brokers have taken a bit of a hit today as the FCA has stepped in and put caps on new client incentives and leverage for inexperienced customers.
The new rules are in place to protect inexperienced traders, but should not have that much of an effect on institutional or semi-professional trades – which spread betting and CFD trading was originally intended.
Over recent years there have been signs that inexperienced trades have been over leveraged and incentivised to trade more because of welcome offer such as deposit bonuses and rewards. This has led to FCA findings that show around 83% of new traders lose money.
The CFD bonus ban and leverage cap can be read on the FCA website here, but the core findings are below:
The FCA is therefore proposing a package of measures intended to enhance consumer protection by limiting the risks of CFD products and ensuring that customers are better informed. The new measures include:
Introducing standardised risk warnings and mandatory disclosure of profit-loss ratios on client accounts by all providers to better illustrate the risks and historical performance of these products.
Setting lower leverage limits for inexperienced retail clients who do not have 12 months or more experience of active trading in CFDs, with a maximum of 25:1.
Capping leverage at a maximum level of 50:1 for all retail clients and introducing lower leverage caps across different assets according to their risks. Some levels of leverage currently offered to retail customers exceed 200:1.
Preventing providers from using any form of trading or account opening bonuses or benefits to promote CFD products.
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Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.