Regulation of Social Trading – Costs and Benefits

At the end of 2013, UK’s Financial Conduct Authority (FCA) sent out a letter to certain social or mirror trading platforms providers regarding future regulatory requirements that may be imposed on such trading methods.

The confidential document was subsequently reviewed by Forex Magnates’ reporters who consequently investigated the issue in order to shed light on the upcoming changes that can be expected in this field.

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Social Trading: Is it a Managed or Self-Directed Account?

Social Trading or Mirror trading, is based on the ancient human tendency to copy whatever seems to be working for someone else. Enabled by recent technological developments and internet-based social platforms, traders can share their activity and choose to follow each other’s decisions, which makes up for a new entity in the eyes of the regulator: Should followed traders be referred to as advisors or signal providers?

It has been nearly a decade since social trading emerged in FX, yet only a Letter of Direction (LOD) was initially needed in order to show that no money manager was using discretions on a client’s account, but it was rather the client himself who wanted to use technology in order to copy trades performed by another trader and to mirror them. Since this type of trading wasn’t considered a managed account nor such that requires a power of attorney (POA), a licensed money manager or a trading advisor, the few platforms offering such social trading systems began growing exponentially.

Exclusive Commentary from Industry Leaders

Forex Magnates reached out to the FCA, as well as a variety of perspectives from eToro, Tradency’s CEO, Lior Nabat, and ZuluTrade ‘s CEO, Leon Yohai, for their exclusive grasp on the industry as well as the counterforce of regulation.

To access the full story, the Forex Magnates Quarterly Industry Report (QIR) for Q2 2014 is now available, and contains nearly everything you need to know that transpired during Q2 for foreign exchange, including a look ahead at the next quarter that has already begun.