In the last 12 months, there have been new laws put in place by the FCA in Wales and around the UK concerning the trading of CFDs. For derivatives that are deemed much more uncertain, the sale and marketing of CFDs have been banned to retail customers to prevent significant losses.
The FCA is one of the most recognized authorities in the world and focuses on investments and trading in over 50,000 financial markets, including the likes of spread betting, forex and stocks to name just a few. When companies breach the authority’s guidelines, implementations are carried out including delaying their ability to trade and closing the firm temporarily.
The FCA has also cracked down on companies in the UK which operate like FCDs in terms of the way in which they sell, market and distribute assets, to prevent rules being bent.
Spread betting is just one of the industries that has been affected. If you want to know what CFD trading is, it is the act of placing a bet on the predicted price of financial markets, including the likes of such as indices, commodities or shares. In very basic terms, the spread is the difference between the buy and sell prices of the asset.
Plus500, IG Group and CMC Markets are just a small handful of the online trading platforms that have been compelled to reduce the leverage they can offer to customers to just 30:1, while traders with more unstable assets are down to just 2:1. As a result, the number of profits made has been significantly lower than ever, as a result of the laws which came into play in August 2019.
According to the Financial Conduct Authority website, Executive Director of Strategy & Competition Christopher Woolard, said on behalf of the FCA:
‘Our intervention follows evidence of firms aggressively marketing CFDs to the general public, meaning retail consumers are buying a product that isn’t appropriate for them. We saw firms offering CFDs with increasingly higher leverage, resulting in high proportions of consumers losing money. EU rules are temporary. The new rules maintain and strengthen protections for consumers.’
For spread betting companies, some of the rules that have been put in place by the FCA include:
- Keeping client funds independent from their business accounts.
- Use specific business techniques and strategies that favours the client.
- Must partake in the Financial Services Compensation Scheme (FSCS).
- The spread betting company must acquire a license from the FCA to trade; by showing a clear and concise business plan to launch a trading corporation.
- Are expected to market their services with statements explaining the risks that may be involved regarding investments.
- Must have good finances in order to trade; with checks carried out by the FCA.
On a final note, you are in your rights to do business with an unlicensed company that hasn’t been checked by the FCA, however, do be aware that corrupt trading companies do exist which could put you at risk of commercial fraud. Check out related business blogs on our website.