UK’s Financial Conduct Authority (FCA) will adopt permanent rules for trading forex, CFDs and CFD- like options, the regulator announced on Monday.
The rules are similar to the ones introduced by the European Securities and Markets Authority (ESMA) last August and will become permanent on August 1st for all CFDs and on September 1st for all CFD- like options.
Most rules are already well known both to traders and their brokers – the maximum leverage will be capped in the range between 2:1 and 30:1 depending on the underlying asset, brokers will have to close client positions when their funds fall to 50% of the required margin, traders will have to be granted a negative balance protection, meaning they will not lose more money then they have deposited, and finally trading bonuses and all non-monetary benefits that a broker might offer, will be prohibited.
Also brokers will be required to publish risk warnings, similar to the ones on the cigarette packs, where it should be made clear what percentage of their clients lose money.
Companies from the European Economic Area – all EU countries plus Norway, Switzerland, Iceland and Liechtenstein with access to the British market will also have to abide by the new rules.
FCA’s intervention followed “evidence of firms aggressively marketing CFDs to the general public, meaning retail consumers are buying a product that isn’t appropriate for them”, said Christopher Woolard, executive director of strategy and competition at the FCA.
“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,” he also said.