Breaking: FCA to Ban All Bonuses, Proposes 1:50 Leverage Cap
The regulator is also devising a strategy to supervise binary options bets once they fall under its jurisdiction.
The UK Financial Conduct Authority (FCA) is taking material measures to protect retail clients that are trading rolling spot forex and contracts for difference (CFDs). The measures are the result of a study which shows that 82 percent of retail brokerage clients are losing money.
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The FCA’s new guidelines extend beyond the limitations that CySEC proposed last week. The regulator states that the growing number of companies providing such products is worrying because clients do not usually understand the risks associated with trading spread betting, CFDs and rolling spot forex contracts.
The FCA’s proposal includes several points. Starting with transparency, companies are to be required to disclose the profit-loss ratio of client accounts publicly in order to adequately demonstrate the risks associated with trading.
The UK watchdog proposes that clients with less than 12 months of trading experience be limited to using leverage of no higher than 1:25. In addition, all retail clients will be capped at a maximum of 1:50. The regulator highlights in its announcement that some clients are receiving leverage of over 1:200.
and about time…
where do people think those bonus’s come from?
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Lastly the FCA is proposing to suspend all bonus practices regardless of whether they are related to trading or account opening.
We have serious concerns that an increasing number of retail clients are trading in CFD products without an adequate understanding
The UK financial regulator is also looking into binary bets and is in the process of devising a new framework that will add to the existing conduct of business rules, when the products are brought into the FCA’s regulatory scope.
Commenting on the news, Christopher Woolard, the Executive Director of Strategy and Competition of the FCA, said: “We have serious concerns that an increasing number of retail clients are trading in CFD products without an adequate understanding of the risks involved, and as a result can incur rapid, large and unexpected losses.”
“We are introducing stricter rules for CFD products to ensure the sector addresses the shortcomings identified, and that firms make sure that retail clients are aware of the high risks involved in trading these complex products. The FCA also has concerns that binary bets pose investor protection risks and question whether binary bets meet a genuine investment need,” he added.
holy cow, this will turn that FCA has no more benefits with 1:50 cap
@Richard – yup, so much for flash crashes only being an equity problem. Glad I don’t work in a dealing room supporting retail customers anymore.
@Richard – yup, so much for flash crashes only being an equity problem. Glad I don’t work in a dealing room supporting retail customers anymore.
Hi Victor.
Could you elaborate on what is meant by proposal? I.e. are these measures that need to be approved by someone? If so, whom, and when? And is the process a mere formality, or do these things have a tendency of being walked back, a bit?
MIchael@ its the standard method of implementing new guidelines, there’s a consultation paper that will engage with the industry, this is open until March 2017 then the FCA will make Policy statement by April
Can you provide a link to docket which the public can make comments on FCA proposal?
bye bye bucket shops! great news for the public.
Once again the proposed measures of the FCA show what I have been maintainig all allong, that nearly 90% of retail traders lose money in the first year of trading, which some brokers did dispute, even denied. But limiting leverage, while positive will not limit the percentage of losers, instead of 90% might go down to 80%, which is still very good for brokers.
Are they allowing people to comment on any of the proposed changes? 1:50 hard cap is a bit much, isn’t it? CySec’s approach to initially setting acct leverage to 1:50 and requiring a separate request along with some test.
In my humble opinion , such decision form FCA should be taken ten years ago . All financial regulators must have the power to let 1:50 leverages take a place , furthermore the concept of the disclosure of the number of retail Fx customers & traders who are making losses at the end of trading day or week, month , and even the end of year , they are always doing NET losses. that’s why the disclosure here can be focused from new customers so they will be caring about their investments . I don’t think that FX Brokers will… Read more »
I do agree with you Dylan , the issue is how to protect customers from trading risk associated and so: 1- I believe that this action “Limited Leverages ” is a good for new customers whom don’t have enough trading experience. 2- I know that it doesn’t matter how much leverage will be (1:50 or 1:25 ) the main topic is the Margin required to maintain open positions BUT at least lower leverage will reduce risk , when open $1000K the margin will be ( in case of 1:25) $400 instead of $40 ONLY in case of (1:400) this is… Read more »
1. Reducing the leverage will not reduce the failure rate. $1k becomes $50k/$25k in the casino (50:1 or 25:1)) as opposed to $200k (200:1). No big deal. it is a lack of risk management and poor psychology that kills them all. 2. No bonuses.. May help somewhat, as it removes a marketing tool for the bucket shop brokers to pull in the complete naive wannabe traders from even starting. However this will be countered with free IPhones and other welcome gifts as alternatives to bonuses. 3. Disclosing profit/loss ratio’s. May deter newbies from starting assuming brokers don’t bury this information… Read more »
High leverage is one reason of losses, trading against customers is another, day trading and stop loss are other traps. You can choose how fast you want to lose your money. Even reducing the percentage of losses to 60% means that brokers have a better advantage than casinos, which are around 55%-58%.
Most people call themselves traders but really are gamblers. If you want better odds learn to play blackjack; at least you get free trinks.
the US stockmarket is leveraged 2:1 for retail traders-it’s a joke, just let the market be free and the idiots and sloths will continue to lose money-does anyone think it’s easy?
Well then.. if Brexit happens, then everyone will just flock to BaFin (&other) EU regulated brokers.. this way the FCA would just kill 75% of the industry in Britain.
Not only retail traders lose money, institutionals , banks and big traders loose too. Recently Soros lost One billion US$ trading against american stocks because of Trump. The difference is that these traders have great staying power (Soros wealth is around 30 billion) and of course they never leverage, they just use their capital, so are never stopped out, just lose capital and close their position when it hurts too much. The retail trader with little capital has no staying power, so he ends up losing everything. Don’t open a trading account with less than $50K, take no position over… Read more »
Now going too far on regulation !