Forex Regulation News Archive - Jul to Sep 2016

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CFDs allow investors to gamble on the price of an asset without ever owning it. The crackdown by the financial watchdog has been long expected and measures will be applied to CFDs such as rolling spot forex and financial spread bets. It has been particularly strict in the area of cryptocurrency. This is because cryptocurrency CFDs can result in steeper losses than owning the actual digital currency should the market crash.

The measures will have an initial duration of up to three months, after which they may be renewed. A binary option is a financial option in which the payoff is either some fixed monetary amount or nothing at all. CFDs are a contract to either receive or pay the difference between the current value of a share, index or other financial instrument and value at a future point in time. CFDs are complex and aimed at sophisticated investors, and it is this complexity and lack of transparency that were flagged.

Other breaking news belgian authorities ban leveraged cfds and spot fx along with all binary options produ associated with CFDs include excessive leverage; structural expected negative return and embedded conflict of interest between providers and their clients; the disparity between the expected return and the risk of loss; and issues related to their marketing and distribution.

However, the inherent complexity of the products and their excessive leverage — in the case of CFDs — has resulted in significant losses for retail investors. The news was a blow to online broker companies such as IG group.

Its share price fell by 9. This compared to 0. This may result in poor client outcomes. Despite there breaking news belgian authorities ban leveraged cfds and spot fx along with all binary options produ being almost no benefit for a client to be categorised as an elective professional, the small number of clients who have been categorised as professional has continued to grow.

Shares in CMC Markets also fell 2. It had recently announced it had launched CFDs and spread betting offerings for cryptocurrencies following significant interest from its users. Leverage is a key feature of CFD trading and spread betting.

It is also one of the main reasons traders are drawn to trading CFDs. CFD leverage allows traders to use their current cash and trade on margin. It can be a double-edged sword as traders can over-leverage and wipe out their trading accounts. The amount of leverage has been the focus of attention for regulators for some time and despite a huge amount feedback from clients and brokers, the ESMA chose to limit the choices for leverage for retail brokers so as to protect investors from significant losses.

CFDs on major currency pairs will be traded with Brokers will be able to offer individual equities at a 5: The leverage caps are especially tight for cryptocurrencies at a strict 2: This is because traders that spread bet, or trade CFDson cryptocurrencies often combine the worst of both worlds - high-risk trading on highly volatile markets.

Bitcoin, one of the most popular cryptocurrencies, soared in but has already lost about half of its value this year. Yet despite the risks, the hype around cryptocurrencies has drawn more customers to trading platforms in the past year.

In its post-close trading update, the company said that it attracted aroundnew clients inup fromthe previous year. Asaf Elimelech, chief executive, said: Reactions across the market about the temporary restrictions have been mixed. Markets Overview Commodities Indices Cryptocurrencies.

Education Overview Courses Glossary Crypto. Log In Trade Now. Clamp down on cryptocurrency spread betting. Cryptocurrency CFDs can result in steep losses. The hype around cryptocurrencies has drawn more customers to trading platforms in the past year.

CFDs are complex and aimed at sophisticated investors. Industrial metals lose their shine by James Hester. Tesco bounces back with full-year profit surge by Dan Atkinson. Commodity trading principles by Dan Atkinson. Why is breaking news belgian authorities ban leveraged cfds and spot fx along with all binary options produ so important to learn to invest for yourself? Send me the link to download Capital. By using the Capital.

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The UK financial regulator is planning to clamp down on the sale by spread betting companies of contracts for difference CFD and binary bet products to less experienced traders, including limiting leverage and preventing companies from attracting customers with special bonus introductory offers.

In light of these high rate of losses, the watchdog said it had concerns that CFDs, a complex form of spread bet and rolling spot foreign exchange product often offered through online platforms, were being opened by retail customers who do not adequately understand them. The FCA also said its research had revealed binary bets are "not transparent enough for investors to adequately value them, and have product features which are more akin to gambling products than investments", while Christopher Woolard, the FCA's executive director of strategy and competition, questioned "whether binary bets meet a genuine investment need".

He said the lack of adequate understanding of the risks involved in CFDs and binary bets often resulted in investors incurring "rapid, large and unexpected" losses. Last week the Cypriot regulator CySEC, which oversees a large number of spread betting operators who use the passporting rights conveyed by this license to trade in the EU, moved to restrict leverage and bonuses.

This adds to what a rising wave of regulation in the industry, said analyst Jonathan Goslin at Numis , with France planning to ban all digital advertising of CFDs, Belgium having banned CFD trading, the Netherlands exploring whether it will follow France and ban the advertising of CFDs, while Germany has said it could "intervene" shortly.

Some levels of leverage currently offered to retail customers exceed The FCA's consultation on the proposals will end on 7 March next year, with the timeline on implementation to be clarified soon after. In a statement released mid-morning on Tuesday, IG acknowledged there were shortcomings in the approach to the marketing of CFDs and binaries "by certain firms, often operating from outside the UK" and stressed its own "highest standards in the industry", saying its initial view was that certain of the FCA proposals "could enhance client outcomes".

It noted, however, "that the FCA's proposals do not appear to directly apply to firms operating from outside the UK offering CFDs and binaries to clients in the UK on a cross-border services passport from another EU member state".

Analyst Paul McGinnis at broker Shore Capital pointed out that IG and CMC "typically operate at the higher end of the market in terms of average revenue per client - implying clients with greater understanding of the products - and would therefore be less impacted in relative terms.

However, the rapid growth seen in leveraged trading in recent years has clearly got onto the radar of regulators which may moderate the growth in new clients going forward.

While the quantum of the impact is very difficult to determine, we believe the companies will experience share price reactions as a result of souring sentiment, derating and a likely negative impact to forecasted growth," RBC said. He said he believed the majority of the regulation being discussed or implemented has been targeted at the lower quality end of the market "i.

Plus and below", which was "long overdue" but was "likely to have a material impact, at least in the near to medium-term, on CMC's growth and profitability across the UK and Europe". On IG, he said: It should however increase a customer's trading life span which will support longer term revenue growth. IG Group Holdings Plus Ltd DI 1, London Capital Group Holdings 0. The new measures proposed by the FCA include: Reaction In a statement released mid-morning on Tuesday, IG acknowledged there were shortcomings in the approach to the marketing of CFDs and binaries "by certain firms, often operating from outside the UK" and stressed its own "highest standards in the industry", saying its initial view was that certain of the FCA proposals "could enhance client outcomes".

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