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FCA imposes bonus ban and leverage cap for CFDs

  • #1
  • First Post: Dec 6, 2016 5:05am Dec 6, 2016 5:05am
The Financial Conduct Authority (FCA) has issued directives today proposing stricter rules for firms selling Contract for Difference (CFD) products to retail customers to improve standards across the sector and ensure consumers are appropriately protected.

The main changes (listed below) involve a ban on all account opening bonus payments to retail traders, and a hard cap on leverage.
The FCA’s moves come just a week after similar measures were introduced by Cyprus financial regulator CySEC. Cyprus is a major center for Retail Forex and Binary Options brokers.

http://www.leaprate.com/wp-content/u...6/10/fcauk.pngContracts for differences, such as spread bets and rolling spot foreign exchange products, are complex financial instruments offered by investment firms, often through online platforms. Following an increase in the number of firms in the CFD market, the FCA has concerns that more retail customers are opening and trading CFD products that they do not adequately understand. The FCA’s analysis of a representative sample of client accounts for CFD firms found that 82% of clients lost money on these products.

The FCA is therefore proposing a package of measures intended to enhance consumer protection by limiting the risks of CFD products and ensuring that customers are better informed. The new measures include:

  1. Introducing standardised risk warnings and mandatory disclosure of profit-loss ratios on client accounts by all providers to better illustrate the risks and historical performance of products.
  2. Setting lower leverage limits for inexperienced retail clients who do not have 12 months or more experience of active trading in CFDs, with a maximum of 25:1.
  3. Capping leverage at a maximum level of 50:1 for all retail clients and introducing lower leverage caps across different assets according to their risks. Some levels of leverage currently offered to retail customers exceed 200:1.
  4. Preventing providers from using any form of trading or account opening bonuses or benefits to promote CFD products.

The FCA is also setting out its vision on a range of policy measures for binary bets that would complement existing conduct of business rules, once these products are brought into the FCA’s regulatory scope.


http://www.leaprate.com/2016/12/fca-...ules-for-cfds/

  • #2
  • Dec 6, 2016 5:29am Dec 6, 2016 5:29am
FCA bonus ban and leverage cap sends IG, CMC and Plus500 shares diving 26-30%

The fallout from the FCA’s move this morning to ban account opening bonus payments to retail traders, as well as a hard 50x leverage cap on CFD trading, has been quick and swift.

And, fairly severe.

Shares of several publicly traded FCA regulated Retail Forex and CFD brokers were absolutely pummeled this morning following our report on the FCA’s release of ts new directives.

Is this all overreaction and overkill?
  • #3
  • Dec 6, 2016 5:50am Dec 6, 2016 5:50am
The leverage cap could be a real game changer ...
  • #4
  • Dec 6, 2016 6:15am Dec 6, 2016 6:15am
Despite what people think about this, that's a great news for traders.

High leverage and bonuses are the best commercial incentives to attract newbies .. who have no idea about the danger of high leverage.

Yes they write in small "Trading involves significant risk of loss" ... but that's like giving a gun to a teenager and warning that it's dangerous to play russian roulette!
MT4/MT5 EAs/Indicators/Alerts coder
  • #5
  • Dec 6, 2016 6:20am Dec 6, 2016 6:20am
So far so good, FerruFX.

However some trading approaches rely on higher leverages. For people who know what they are doing a hard cap cuts their possibilities. So it depends on the option of getting a higher leverage after some kind of suitability check.

Though, I am with you on the bonus part.
  • #6
  • Dec 6, 2016 6:26am Dec 6, 2016 6:26am
More proof that all regulators are useless!

OK, the ban on bonuses - that's .....understandable.

But the cap on leverage (50:1) - bad!

The reduction of the leverage will have absolutely no benefit for the traders. The only effect from this will be that traders will be forced to deposit ( and keep) more money in their trading accounts. And I don't see this as a positive thing. Why?

1. The majority of traders will continue to lose money no matter what.
With high leverage they lose small deposits faster, and with low leverage they lose larger deposits slightly slower......the end result is the same if not worse!

2. Brokers are not the safest place to keep large amount of money.
At the moment the FCA provides limited funds protection (up to only 50K.)
So low leverage will have serious impact on professional and larger individual traders. The FCA is basically forcing larger traders to put more money at risk and effectively so forcing traders to exceed the funds protection limit many times over.......and they call this protection....

And let's be honest - All this "nanny state protection" bullshit makes no sense!
  • #7
  • Edited 7:10am Dec 6, 2016 6:55am | Edited 7:10am
What a fu*kers, all regulators against traders? Leverage 1:50, what a bullshit, so keeping big money on brokers account will keep traders safer? Right, one more time regulator destroys good forex brokers, UK brokers are done. Only Australian brokers left...

Could anybody tell me if these new rules also apply to forex pairs at MTF like LMAX?
  • #8
  • Dec 6, 2016 7:06am Dec 6, 2016 7:06am
Quoting FerruFx
Despite what people think about this, that's a great news for traders. High leverage and bonuses are the best commercial incentives to attract newbies .. who have no idea about the danger of high leverage. Yes they write in small "Trading involves significant risk of loss" ... but that's like giving a gun to a teenager and warning that it's dangerous to play russian roulette!
These newbies don't understand the concept of leverage and margin and they won't understand it if maximum leverage will be reduced. From a newbie traders point of view that whole trading experience needs a redesign. It's fine how it is for people who know what they're doing but the newbie would probably require an approach close to "a loss of x pips will wipe out your account".
  • #9
  • Dec 6, 2016 7:08am Dec 6, 2016 7:08am
Quoting Drolph
For people who know what they are doing a hard cap cuts their possibilities. So it depends on the option of getting a higher leverage after some kind of suitability check. Though, I am with you on the bonus part.
Yes agree 100% ... It should be like in most countries where alcohol and cigarette are not allowed to be promoted.
MT4/MT5 EAs/Indicators/Alerts coder
  • #10
  • Dec 6, 2016 7:10am Dec 6, 2016 7:10am
Quoting alphaomega
The only effect from this will be that traders will be forced to deposit ( and keep) more money in their trading accounts. And I don't see this as a positive thing. Why? 1. The majority of traders will continue to lose money no matter what. With high leverage they lose small deposits faster, and with low leverage they lose larger deposits slightly slower......the end result is the same if not worse! 2. Brokers are not the safest place to keep large amount of money. At the moment the FCA provides limited funds protection (up to only 50K.) So low...
Fair point ...
MT4/MT5 EAs/Indicators/Alerts coder
  • #11
  • Dec 6, 2016 7:12am Dec 6, 2016 7:12am
Want to know what the difference is between playing say Roulette with an average take against the player of 5% and Craps where the odds on the Pass/Don't Pass (similar to Black/Red in Roulette) are just over 1%?

Not much. Playing Craps means it will take the Casino just a little bit longer to get your money.

Same with Spread betting or anything where high leverage is offered. So the only difference between 500:1 and 50:1 for most people starting out who fail to do much research into how to trade is they'll lose just that little bit slower.


So typical jackass move from a Regulator which will help nobody and certainly not any newbie traders.

Regulators should stick to what they excel at - having useless meeting after useless meeting.
Road To Wisdom? To err and err and err again, but less and less and less...
  • #12
  • Dec 6, 2016 7:17am Dec 6, 2016 7:17am
I don't see a problem with a cap on leverage.

If my understanding is correct, a leverage of 1:50, i.e. 2% margin requirement means anyone wanting to trade a $1000 micro-lot needs 2% of that amount on account, i.e. $20 no? Most brokers require a minimum deposit of $200, so I honestly can't see the issue for those traders who are managing their risk accordingly.

In terms of "protecting" retailers, it wouldn't surprise me if in reality the FCA is clipping a few wings going after the brokers who've had far too good a time milking high leverage for their own gain.
  • #13
  • Dec 6, 2016 7:24am Dec 6, 2016 7:24am
i think 1:50 is ok for traders(not for gamblers), if you look on other "same" market´s like Futures (1:25) the way for retail Forex will be clear. Real Primebrokers have 1:25 max 1:50. You will see in the next month´s there will come much more restrictions not only for the Clients for the Brokers too ;-)

The great losers from the leverage change will be: grid and martingale systems.
aka Liquinvest
  • #14
  • Dec 6, 2016 7:29am Dec 6, 2016 7:29am
Quoting simond2002
I don't see a problem with a cap on leverage. If my understanding is correct, a leverage of 1:50, i.e. 2% margin requirement means anyone wanting to trade a $1000 micro-lot needs 2% of that amount on account, i.e. $20 no? Most brokers require a minimum deposit of $200, so I honestly can't see the issue for those traders who are managing their risk accordingly. In terms of "protecting" retailers, it wouldn't surprise me if in reality the FCA is clipping a few wings going after the brokers who've had far too good a time milking high leverage for their...
It is not only grid and martingale - scalpers are affected as well. If you trade breakouts with short SL (meaning small risk!) and in consequence comparable large lotsizes you are running out of margin way too fast having small leverages.
  • #15
  • Dec 6, 2016 7:31am Dec 6, 2016 7:31am
Quoting Copis
i think 1:50 is ok for traders(not for gamblers), if you look on other "same" markets like Futures (1:25) the way for retail Forex will be clear. Real Primebrokers have 1:25 max 1:50. You will see in the next months there will come much more restrictions not only for the Clients for the Brokers too ;-) The great losers from the leverage change will be: grid and martingale systems.
Using higher leverage is NOT gambling, understand that, sir. Mainly, I don't think you understand what ''leverage'' means. It can mean depositing a small sum to trade without having to risk all your money inside a broker (as it is dangerous, as mentioned in one of the posts here). For retail traders like me don't misuse the leverage, so you don't need to call me a gambler.


I'm not placing more than $200 online anyway.
  • #16
  • Dec 6, 2016 7:46am Dec 6, 2016 7:46am
Just to clarify, for forex - does this affect only spread betting forex products ( which is tax free in UK) or will it affect all forex products offered by brokers?
  • #17
  • Dec 6, 2016 7:52am Dec 6, 2016 7:52am
IG (IGG) stock probably a big buy around these levels. Great company, excellent management, long pedigree.

I read a book by Lazlo Byriani that had an excellent chapter on short term bearish news hitting good stocks. I can't remember what he called the strategy. For example, ABC Airlines might be a supreme company with an excellent past and future but some nasty air crash (with a different airline) for some reason frightens investors and knocks the industry stocks by 20%-40%. If so, buy into that decline if you belive a) the company's long term prospects are still excellent, and b) the news is transitionary.

We could well have to same happening right now with IGG. I'm a buyer right here. Stop loss at £0.00 which I don't think will get hit.
Road To Wisdom? To err and err and err again, but less and less and less...
  • #18
  • Dec 6, 2016 8:01am Dec 6, 2016 8:01am
Quoting Drolph
{quote} It is not only grid and martingale - scalpers are affected as well. If you trade breakouts with short SL (meaning small risk!) and in consequence comparable large lotsizes you are running out of margin way too fast having small leverages.
Exactly. My effective leverage is around 80, sometimes more - I like to double some winning positions if certain conditions are met. Since I like to use spread betting accounts going to non-UK brokers would mean paying tax on my winnings (that's not gonna happen) so I may have to put more money with my broker once these proposals become reality.
  • #19
  • Dec 6, 2016 8:16am Dec 6, 2016 8:16am
For those who mess up high leverage trading with gambling, which is totally wrong look at example. Trader has $100.000 capital for forex trading and want to start with percentage risk of 1% capital, so $1000. In first scenario he decides to make transfer of $10000 to broker, $90000 leaves on bank account and trades with 10% risk per every trade. In second scenario FCA wants to protect our trader and let's him trade only with 1:50 leverage and as trader is scalper he needs to transfer whole capital to broker account to start with $1000 risk per every trade. He made 50 winning trades 1:2 R:R and 50 losing trades. In first example he ends this trading period with capital of $579.032,3, in second only with $166.149,1 although he started with $100.000.
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  • #20
  • Dec 6, 2016 10:19am Dec 6, 2016 10:19am
Quoting insomniawawa
For those who mess up high leverage trading with gambling, which is totally wrong look at example. Trader has $100.000 capital for forex trading and want to start with percentage risk of 1% capital, so $1000. In first scenario he decides to make transfer of $10000 to broker, $90000 leaves on bank account and trades with 10% risk per every trade. In second scenario FCA wants to protect our trader and let's him trade only with 1:50 leverage and as trader is scalper he needs to transfer whole capital to broker account to start with $1000 risk per every...
Exactly
I have 40000$ totally
10000$ with 1:200 = 40000$ with 1:50 .
I'm amateur ...so I lose my money.
10000 broker + 30000 bank or 40000 broker
If I lose money because bad trade...witch one is better for me...10 or 40 ?
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