FCA bans CFD bonuses and tightens leverage for new customers

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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Trading Risk Warning

ALL INVESTING INVOLVES RISK. Investing, Derivatives, Spread betting and CFD trading carry a high level of risk to your capital and can result in losses that exceed your initial deposit. They may not be suitable for everyone, so please ensure that you fully understand the risks involved.
ESMA & FCA Risk Warning – “CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 68-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Capital at risk”