The Financial Conduct Authority (FCA) has published its annual Sector Views, this Tuesday, in which the regulator has provided an assessment of the risks and potential harm to consumers in the financial services markets.
Although the report covers a wide range of sectors, it’s the retail investment sector that is of particular interest, which covers the distribution of investment products, and retail products sold directly to consumers, such as contracts for difference (CFDs).
According to the regulator, sustained lower interest rates continue to drive investors away from safer asset classes into riskier assets, such as CFDs, mini-bonds, and even into the arms of fraudsters.
FCA: restrictions have saved consumers up to £451m p/a
In the report, the British watchdog highlights that before product intervention measures were implemented on CFDs, there were an estimated 800,000 active client accounts holding a total of £1.5bn in Client Money
Client Money
Client money refers to the money or margin – which may be any currency in the form of cash, check, draft, or electronic transfer – that a firm receives or holds for a client. Money held by a firm in the form of a stakeholder, which is are not payable on demand or immediately due, also refers to client money. The definition of client money does not apply to money held by businesses that operate in its own name on behalf of a client. Although the client does have to be in agreement before this arrangement is made. Who Owns Client’s Money?When clients transfer complete ownership of money to a firm with the intention of covering present or future, contingent or actual or prospective obligations, that money is no longer seen as client money once it is transferred out of the account to the firm. When a firm acquires full ownership of money through a collateral agreement, the firm has also taken an obligation to repay the client although distributed funds upon agreement completion are not considered to be client money. This transfer of full ownership of money is an example of a title transfer financial collateral arrangement under the Financial Collateral Directive, were once transferred that client’s money is no longer considered client money.Should a firm enter an arrangement with a client where a commission is rebated, those rebates are not considered client money until they become due with the terms of the agreements set forth between both parties. Firms are required to operate with the client’s best interest rule, which means that they are required to act professionally, honestly, and fairly.
Client money refers to the money or margin – which may be any currency in the form of cash, check, draft, or electronic transfer – that a firm receives or holds for a client. Money held by a firm in the form of a stakeholder, which is are not payable on demand or immediately due, also refers to client money. The definition of client money does not apply to money held by businesses that operate in its own name on behalf of a client. Although the client does have to be in agreement before this arrangement is made. Who Owns Client’s Money?When clients transfer complete ownership of money to a firm with the intention of covering present or future, contingent or actual or prospective obligations, that money is no longer seen as client money once it is transferred out of the account to the firm. When a firm acquires full ownership of money through a collateral agreement, the firm has also taken an obligation to repay the client although distributed funds upon agreement completion are not considered to be client money. This transfer of full ownership of money is an example of a title transfer financial collateral arrangement under the Financial Collateral Directive, were once transferred that client’s money is no longer considered client money.Should a firm enter an arrangement with a client where a commission is rebated, those rebates are not considered client money until they become due with the terms of the agreements set forth between both parties. Firms are required to operate with the client’s best interest rule, which means that they are required to act professionally, honestly, and fairly.
Read this Term.
“We estimated that, overall, retail clients lost £1.07bn per year trading these products,” the regulator said in the report. “Following the introduction of Leverage
Leverage
In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders need to rely on leverage to make financial trading viable. Generally, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The market which offers the most leverage is undoubtedly the foreign exchange market, since currency fluctuations are relatively tiny. Of course, traders can select their account leverage, which usually varies from 1:50 to 1:200 on most forex brokers, although many brokers now offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. For example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. Likewise, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. With leverage, the potential for profit is clear to see. Likewise, it also gives rise to the possibility of losing a much greater amount of their capital, because, had the value of the asset turned against the trader, they could have lost their entire investment.FX Regulators Clamp Down on Leverage Offered by BrokersBack in multiple regulators including the United Kingdom’s Financial Conduct Authority (FCA) took material measures to protect retail clients trading rolling spot forex and contracts for difference (CFDs). The measures followed after years of discussion and the result of a study which showed the vast majority of retail brokerage clients were losing money. The regulations stipulated a leverage cap of 1:50 with newer clients being limited to 1:25 leverage.
In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders need to rely on leverage to make financial trading viable. Generally, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The market which offers the most leverage is undoubtedly the foreign exchange market, since currency fluctuations are relatively tiny. Of course, traders can select their account leverage, which usually varies from 1:50 to 1:200 on most forex brokers, although many brokers now offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. For example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. Likewise, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. With leverage, the potential for profit is clear to see. Likewise, it also gives rise to the possibility of losing a much greater amount of their capital, because, had the value of the asset turned against the trader, they could have lost their entire investment.FX Regulators Clamp Down on Leverage Offered by BrokersBack in multiple regulators including the United Kingdom’s Financial Conduct Authority (FCA) took material measures to protect retail clients trading rolling spot forex and contracts for difference (CFDs). The measures followed after years of discussion and the result of a study which showed the vast majority of retail brokerage clients were losing money. The regulations stipulated a leverage cap of 1:50 with newer clients being limited to 1:25 leverage.
Read this Term limits and other investor protection measures, total losses for retail clients of UK firms reduced by £77m between August and October 2018 alone. We estimate that our final rules will save retail consumers between £267m and £451m overall per year.”
However, the FCA outlines that retail consumers are still at risk, as some CFD providers are encouraging their retail clients to opt up to ‘elective professional status,’ or use third-country firms to circumvent the leverage restrictions.
Crypto FOMO
For investments in crypto assets, according to the authority, ‘getting rich quick’ and ‘fear of missing out’ were the key incentives for consumers buying these products.
“Respondents also said they distrusted mainstream media and communications from institutions when considering these investments. They prefer to rely on friends, family and acquaintances, specialised online media and social media. Respondents were confident in their knowledge of the market and/or their ‘instincts’ when making decisions.”
The Financial Conduct Authority (FCA) has published its annual Sector Views, this Tuesday, in which the regulator has provided an assessment of the risks and potential harm to consumers in the financial services markets.
Although the report covers a wide range of sectors, it’s the retail investment sector that is of particular interest, which covers the distribution of investment products, and retail products sold directly to consumers, such as contracts for difference (CFDs).
According to the regulator, sustained lower interest rates continue to drive investors away from safer asset classes into riskier assets, such as CFDs, mini-bonds, and even into the arms of fraudsters.
FCA: restrictions have saved consumers up to £451m p/a
In the report, the British watchdog highlights that before product intervention measures were implemented on CFDs, there were an estimated 800,000 active client accounts holding a total of £1.5bn in Client Money
Client Money
Client money refers to the money or margin – which may be any currency in the form of cash, check, draft, or electronic transfer – that a firm receives or holds for a client. Money held by a firm in the form of a stakeholder, which is are not payable on demand or immediately due, also refers to client money. The definition of client money does not apply to money held by businesses that operate in its own name on behalf of a client. Although the client does have to be in agreement before this arrangement is made. Who Owns Client’s Money?When clients transfer complete ownership of money to a firm with the intention of covering present or future, contingent or actual or prospective obligations, that money is no longer seen as client money once it is transferred out of the account to the firm. When a firm acquires full ownership of money through a collateral agreement, the firm has also taken an obligation to repay the client although distributed funds upon agreement completion are not considered to be client money. This transfer of full ownership of money is an example of a title transfer financial collateral arrangement under the Financial Collateral Directive, were once transferred that client’s money is no longer considered client money.Should a firm enter an arrangement with a client where a commission is rebated, those rebates are not considered client money until they become due with the terms of the agreements set forth between both parties. Firms are required to operate with the client’s best interest rule, which means that they are required to act professionally, honestly, and fairly.
Client money refers to the money or margin – which may be any currency in the form of cash, check, draft, or electronic transfer – that a firm receives or holds for a client. Money held by a firm in the form of a stakeholder, which is are not payable on demand or immediately due, also refers to client money. The definition of client money does not apply to money held by businesses that operate in its own name on behalf of a client. Although the client does have to be in agreement before this arrangement is made. Who Owns Client’s Money?When clients transfer complete ownership of money to a firm with the intention of covering present or future, contingent or actual or prospective obligations, that money is no longer seen as client money once it is transferred out of the account to the firm. When a firm acquires full ownership of money through a collateral agreement, the firm has also taken an obligation to repay the client although distributed funds upon agreement completion are not considered to be client money. This transfer of full ownership of money is an example of a title transfer financial collateral arrangement under the Financial Collateral Directive, were once transferred that client’s money is no longer considered client money.Should a firm enter an arrangement with a client where a commission is rebated, those rebates are not considered client money until they become due with the terms of the agreements set forth between both parties. Firms are required to operate with the client’s best interest rule, which means that they are required to act professionally, honestly, and fairly.
Read this Term.
“We estimated that, overall, retail clients lost £1.07bn per year trading these products,” the regulator said in the report. “Following the introduction of Leverage
Leverage
In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders need to rely on leverage to make financial trading viable. Generally, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The market which offers the most leverage is undoubtedly the foreign exchange market, since currency fluctuations are relatively tiny. Of course, traders can select their account leverage, which usually varies from 1:50 to 1:200 on most forex brokers, although many brokers now offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. For example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. Likewise, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. With leverage, the potential for profit is clear to see. Likewise, it also gives rise to the possibility of losing a much greater amount of their capital, because, had the value of the asset turned against the trader, they could have lost their entire investment.FX Regulators Clamp Down on Leverage Offered by BrokersBack in multiple regulators including the United Kingdom’s Financial Conduct Authority (FCA) took material measures to protect retail clients trading rolling spot forex and contracts for difference (CFDs). The measures followed after years of discussion and the result of a study which showed the vast majority of retail brokerage clients were losing money. The regulations stipulated a leverage cap of 1:50 with newer clients being limited to 1:25 leverage.
In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders need to rely on leverage to make financial trading viable. Generally, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The market which offers the most leverage is undoubtedly the foreign exchange market, since currency fluctuations are relatively tiny. Of course, traders can select their account leverage, which usually varies from 1:50 to 1:200 on most forex brokers, although many brokers now offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. For example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. Likewise, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. With leverage, the potential for profit is clear to see. Likewise, it also gives rise to the possibility of losing a much greater amount of their capital, because, had the value of the asset turned against the trader, they could have lost their entire investment.FX Regulators Clamp Down on Leverage Offered by BrokersBack in multiple regulators including the United Kingdom’s Financial Conduct Authority (FCA) took material measures to protect retail clients trading rolling spot forex and contracts for difference (CFDs). The measures followed after years of discussion and the result of a study which showed the vast majority of retail brokerage clients were losing money. The regulations stipulated a leverage cap of 1:50 with newer clients being limited to 1:25 leverage.
Read this Term limits and other investor protection measures, total losses for retail clients of UK firms reduced by £77m between August and October 2018 alone. We estimate that our final rules will save retail consumers between £267m and £451m overall per year.”
However, the FCA outlines that retail consumers are still at risk, as some CFD providers are encouraging their retail clients to opt up to ‘elective professional status,’ or use third-country firms to circumvent the leverage restrictions.
Crypto FOMO
For investments in crypto assets, according to the authority, ‘getting rich quick’ and ‘fear of missing out’ were the key incentives for consumers buying these products.
“Respondents also said they distrusted mainstream media and communications from institutions when considering these investments. They prefer to rely on friends, family and acquaintances, specialised online media and social media. Respondents were confident in their knowledge of the market and/or their ‘instincts’ when making decisions.”
