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Forex knocked out after FCA announcement

Forex knocked out after FCA announcement
 

Great Britain’s major financial authority FCA has introduced new rules of trading contracts for difference (CFDs) and is likely to have a dig at the binary options soon. Recent research has shown that astonishing 82% of clients lose their money on trading, while the number of small brokers is constantly growing. From now on, the brokers have to disclose the profit-to-loss ratio of their current clients, so that the projected clients could estimate the trading risks adequately. Moreover, the regulator now requires to ban inexperienced traders (with less than 12-month experience) from trading on over 1:25 leverage, while private clients will not be able to use leverage over 1:50. This requirement has appeared because many brokers now allow margin trading with leverage up to 1:200. FCA also banned all bonus practices, including account opening and trading bonuses.

The largest forex brokers of the UK momentarily faced an air pocket upon this news. Say, CMC Markets share price fell by a third, from 1.8 to 1.2 pounds per share. 

 

CMC was followed by other forex market players like PLUS 500. The quotes here fell by 36%, from 6 to 3.8 pounds.

 

The worst dropdown was experienced by IG Markets: the stock price, before being 7.9 pounds, fell by 40% to 4.7 pounds.

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The US forex market, on the contrary, rapidly went up on the news from the UK.

 

Forex brokers have become so popular mostly due to their aggressive marketing. Large bonuses paid for account opening and the opportunity to trade costly financial instruments thanks to big leverages attract a lot of newbie traders with small deposits. This assumption proved to be true by the drastic fall of this market after the FCA announcement.

British authorities are not the only ones to move towards limiting these practices. Last week Cyprian CySEC announced limitation of the leverage provided without specialized due diligence of the regulator, which is now 1:50.

‘EXANTE supports such initiatives. Excessive risk in trading leads to unjustified losses. Many inexperienced investors lose their money due to using too big leverages, and in many cases such risk is not justified: the projected income does not offset it. Unlike the CFD brokers, stock brokers, including EXANTE, do not provide such leverages because everybody understands that they are a one-way ticket to bankruptcy. Thanks to the new limitations, CFD investors will be able to trade more consciously, which will bring benefit to everyone: the regulator, stock exchanges, stock brokers and, of course, investors. CFD brokers will have to make their services safer, which is again only for the better,’ admitted Anton Iospa, EXANTE Marketing Director.

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