UK forex brokers are engaging in campaigns to fight against the UK's crackdown on leverage and bonuses
Here's a can of worms for you.
UK retail brokers aren't happy about the regulatory changes that the Financial Conduct Authority wish to propose.
Back in December they announced a consultancy period to assess implementing the following;
- Making sure there are standardised risk warnings given to customers
- Getting brokers to publish win/loss ratios
- Capping the proportion of "borrowed" funds that can be used by inexperienced clients
- Stopping brokers from using account bonuses to promote CFD products
Since then, further details of what the FCA wish to clamp down on have emerged.
- Lowering leverage limits to 1:25 for customers with less than 1 year trading experience
- Capping maximum leverage at 1:50 for traders with over 1 year's experience
- Ban on cash bonuses
Brokers aren't overly happy with that. ETX has sent an email out to customers showing their displeasure.
"The Financial Conduct Authority (FCA) is proposing to lower leverage on spread betting, forex and CFD products to a maximum of 50:1 as part of its wider review of the industry.
As an active trader of these products the proposals would have a direct impact on your ability to trade and increase the amount of money you need to deposit.
The purpose of the FCA's blueprint is to improve quality and raise standards in the industry. We wholeheartedly support this aim and are working with the regulator to find the best methods to achieve this.
We are fully committed to any action that works in the best interest of our clients, for example by rolling out additional tools and education to help mitigate risk.
However, we feel that the proposed changes to leverage are a step too far as they will have a detrimental effect on your ability to trade using current margin requirements.
If the proposal to reduce leverage is approved you would need to deposit more money in your account to trade. Margin requirements may increase by up to 10 times in some cases."
They haven't directly come out and asked customers to support them but they have given the links to the FCA consultation site in their email under "How you can share your views". They then give examples of how customers are likely to be affected financially by the new rules.
The email does a good job of detailing what may be coming but there's a definite undertone of 'If this happens, it's going to cost you' about it, and that doesn't sit well with me.
But that's not all, brokers have apparently held secret talks with the FCA to voice their dissatisfaction about the proposed changes. On 8th Feb, an invitation only meeting between leading brokers and the FCA took place. The call that it was a secret meeting is a bit ambiguous as the FCA has wanted to engage with brokers individually, and collectively as part of the consultation process.
Not all brokers are against the new proposals, and some even want the FCA to do more. FCA registered Darwinex, came out and said that the FCA needed to look in another direction when trying to assess the risks of trading;
"It's going to be messy to implement... but that's NOT the BIG problem about what the FCA propose to do. The problem is it feels as though they asked "How much money do people lose?" instead of "Why do people lose so much?"
Asking why people lose money is absolutely the right question to ask, and I think we all know the main reasons why, the most notable being that people don't understand how markets or their products work. It's also far too easy for people to trade with amounts well above what they actually have or can afford.
The FCA consultation period ends 7th March and is open to us mere mortals to give our views, so if you want to make yourself heard, and give some real reasons why the market needs changing, you've got no excuse not to.
Expect more jockeying by brokers over this, and feel free to send us any emails or notices from your brokers on the subject, that you feel need sharing with a wider audience.
