Saxo Capital Markets, one of the proper CFD brokers that generally caters to a more sophisticated trader base has backed ASICs plans to follow the FCA and ESMA to reduce the leverage available to retail traders.
Everyone else, of course, is in an absolute uproar about how appalling it is that regulators are sticking their noses in and destroying the industry.
But the fact of the matter is that it’s really only the spivvy little brokers that B-Book clients that will be most affected.
Decent derivatives brokers cater to traders who know what they are doing and aim to build long term relationships with their clients. The days of churn and burn are long gone.
Smaller retail forex brokers want high leverage because their business model operates more like a bookie where they rely on lots and lots of small punters losing money.
Clearly there is a set of forex brokers that have the interest of their clients in mind. Whilst the others don’t care at all.
In this case, Saxo Capital Markets are not breaking ranks like a coal mining scab, they are accepting the fact that whilst everyone has the right do trade, it has become too accessible to traders who don’t have a clue what they are doing.
High leverage rates are still available to experienced traders and to be fair it’s only experienced traders who should have access to it.
Twenty years ago, everyone had access to the same margin rates. But it was difficult to open an account. You had to fill in a form, get credit checked, deposit a minimum of £5,000 and it took at best three days to get your account open.
So, in essence, the industry was self-policing, by being complicated.
But now, since Plus 500 revolutionised the onboarding process there is a move to “democratise” trading which is quite frankly ridiculous. Trading does not need democratising, opening up to the masses or disrupted. It’s a niche industry and as much as brokers would like it not to be the case, trading is not for everyone.
The only people that should be trading are sophisticated investors who are allocating under 10% of their liquid net worth to high-risk speculative products.
Muppets who follow #forex Instagram lifestyles or bogus trading millionaire educators should have to demonstrate that they at least understand the risks involved in trading in a relatively less risky environment.
Even the FCA has joined Instagram to highlight how scammy it all is.
There are some good stats in the Australian Financial Review in an article written by Duncan Hughes
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.