IS the End in sight for UK FX Retail Trading

Beginner Questions
1

[B]I would like to use this thread to talk about the following changes that will be taking place which will effect all UK retail clients who use leveraged products, such as CFDs and FX.

Over the coming weeks when the FCA starts to issue guidelines of the confirmed changes they will be updated here[/B]

Talks are planning to go ahead in the next months (latest June 2017) with the relevant authorities (FCA) and tension is running high throughout all UK based retail brokers, both Spread Betting and leveraged CFD providers.

After I took the time to discuss this with some of the biggest UK brokers, to name a few (IG, FX Pro, LCG [and the Financial Conduct Authority ā€˜FCAā€™]) it is clear that there is a high level of unknown uncertainty, and everyone is hoping that preliminary decisions will be drawn in the sand within the next 8 weeks for the future of UK FX trading (actually, this includes all leveraged trading on all financial products).

The top four points on the agenda which is almost a ā€˜sure betā€™ from the clients side of the consultation paper issued is that of:

[ol]
[li]Reduced account leverage, upto a maximum of 1:50, much less for traders with less than 12 months industry track record
[/li][li]Much higher minimum account opening balances
[/li][li]Proof of your own income and net worth, if you donā€™t have enough cash/asset equity you may not be allowed to open an account
[/li][li]Proof that you know how to trade with ā€˜real historyā€™ in the markets
[/li][/ol]

This is really worth keeping an eye on over the next six months in the UK, the ramifications of such decisions will clearly isolate the less wealthy individuals who want to open a new trading account, regardless of them taking the business seriously. We all have to start somewhere, lets not forget this.

It seems that traders who have opened accounts and lost money have done so without fully understanding the risks involved. The financial and regulations authorities are now on to this and will put rules into place.

This could be the end of FX trading as we know it in the UKā€¦

[I]

"After the FCA proposed leverage limitations and other restrictions on CFDs in December, Britainā€™s biggest listed providers ā€” IG Group, CMC Markets and Plus500 ā€” lost billions of pounds in value. CMC, led by former Tory treasurer Peter Cruddas, was demoted from the FTSE 250 last week.

The UKā€™s financial watchdog has received more than 2,500 responses to its proposals to limit the sale of risky trading bets to retail investors, a far stronger reaction than its consultations usually elicit.

Nick Bayley, a former department head at the FCA and now managing director at advisory firm Duff and Phelps, said the high response rate ā€œsuggests to me thereā€™s been an orchestrated campaign of some sortā€. (Ironically, when I was talking to some of the big UK brokers I quickly found out who was driving this campaign, it can therefore be confirmed as a forced campaign)

Typically, the FCAā€™s consultation papers would receive 10 to 150 comments."
[/I]

[B]Consultation paper here > https://www.fca.org.uk/firms/contracts-for-difference[/B]

2

Some engaged parties are squeezing out competitors? Certainly its not done due to client complaints or a desire to change situation where newbie are put in a bad box trading leveraged products.
But lets see how brokers will adapt to this.

3

Itā€™s actually quite the opposite - there are no competitors trying to gain more market share in this scenario. This is all about the FCA imposing regulations onto the UK brokers, which in turn will be passed onto the consumer - hence, the retail trader.

After speaking to the FCA it is very clear that the retail industry for CFDs and Leveraged products has exploded since 2008. Not only has the industry grown, but so has the number of dissatisfied customers who have next to little knowledge of the products that they are trading.

Itā€™s costing the FCA millions to deal with these complaints, itā€™s no wonder they are re-evaluating the regulation which is in place. One key comment that I did pick up when talking to the FCA is that they want to align retail trading regulations with that of institutional trading regulations, to name a few as below.

  1. COBS 10 > https://www.handbook.fca.org.uk/handbook/COBS/10.pdf
  2. COBS 9 (still in preliminary talks) > https://www.handbook.fca.org.uk/handbook/COBS/9.pdf
  3. MIFID Standards where applicable

Lots of space to watch over the coming weeks.

4

Typical, I just start getting into it and now I might be forced out, Iā€™m glad I saw this before buying anything or opening a live account, I guess Iā€™d better sit back and wait, no point spending hours a day studying for something that I wonā€™t be able to do!

5

Itā€™s clearly a worrying thought for newbies and experienced traders, however this will all depend on the severity of the final regulations which have been put in place. I ā€˜thinkā€™ itā€™s fair to say that CFD/Leveraged retail trading will not be stopped, however the barriers to enter this market place could be much higher than they are right now - which is not difficult as there are no barriers at present; which is where the problem has arisen from in the first place.

I donā€™t quite think UK based retail traders realise whatā€™s happening in the background; that is until they receive emails/letters from their brokers explaining the final decisions.

Iā€™d personally go about business as usual and face the music when we know more, which should be in a number of weeks.

It may also be worth understanding that loopholes could exist, which is more than likely, but that canā€™t be answered until a later date - such as moving to offshore regulated** brokers (similar to what US retail traders are trying to figure out).

**The problem here is that ā€˜regulatedā€™ consists of different levels of consumer protection depending on the regulating authority, which is different from country to country.

6

Sorry, butā€¦

old news :slight_smile:

http://forums.babypips.com/forextown/83768-uk-government-clamp-down-spread-betting.html?highlight=FCA+PipMeHappy

7

ummā€¦i think youā€™re mistaken

The proposal was indeed discussed at the back end of last year.

Now we are getting the results from the proposal - hence, what IS going to change.


8

I seeā€¦ apologies for that specific pointā€¦ however, I do not see much difference between what

was proposed and what will be implemented, overallā€¦

In the end, it will not stop many people at all, it is a smokescreenā€¦ that is my belief.

You can still go to ruins with 50x leverage, to say one thingā€¦

What do you think?

9

I really hope it is just a [I]smokescreen[/I]; however the leading UK brokers really donā€™t seem to think it will be quite so simple [as just leverage being reduced, anyway]. However, on the point of leverage, the proposal suggested 25:1 unless you can show one years experience in which case 50:1 maximum, as you also said.

Iā€™d personally be guessing the rest, but iā€™m sure anyone can read in between the lines of the proposal which was attached in a previous post - itā€™s not such a rosy outlook, in fact it very much appears that they are going for the hard line.

Personally, Iā€™d like it to be a soft regulation, but I would not be surprised if the minimum account opening requirements was Ā£10K with a minimum net worth of Ā£100k in either cash or assets.

The following extract from the proposal does ask the question regarding account opening requirements, such as the smallest opening balance.
[I]
ā€¢ Retail clients are being offered [B]smaller minimum account sizes[/B] and order sizes [B]combined
with higher leverage[/B], with some firms offering in excess of 200:1. At 200:1, clients are only
required to post 0.5% of their total notional exposure (this is commonly known as initial
margin).[/I]

I guess anyone could argue this? Do they attack leverage or account opening balances or indeed both?

10

Blame it on Trump

11

One thing is for sure, and thatā€™s that we are certainly following in the shadow of the US regulationsā€¦

Iā€™m very surprised that what is going to happen has caused so little concern to UK retail traders.

12

You are right Jezz & you guys need to fight it in any way that you can. This sounds even worse then what Dodd Frank Bill did to us U.S. retail traders.

13

I guess it is what it is now, the papers have passed, the feedback has been taken into account by the FCA (which, actually means, that it has been thrown in the bin)ā€¦in the next weeks we will see what the regulations are and we are stuck with them.

Time will tell!

14
15

The ball is in motionā€¦

I have a terrible feeling that this is only the start, regardless of weeding out the less regulated brokers.

16

And so continues the quest to strip the rights from the prudent and the ones who bother to educate themselves in order to protect the ignorant and irresponsible. Better give everyone a few big sacks of cotton wool to wrap themselves inā€¦then weā€™ll all be really safe.

17

I guess the FCA would consider themselves as the ones of whom are educated, protecting the retail clientsā€¦the reality though, is that they are going to punish the retail traders and not so much the retail brokers.

By implementing such [B]proposed regulations[/B] [this is in bold as it is proposed, not my opinion], will only actually stop retail traders from interacting in such activity.

I totally understand the differential between retail brokers and the actual market (of which the two hardly ever meet to make transactions) - regardless of this, I believe it is unfair to limit the participation of all retail traders based on being able to prove:

  1. Demand a minimal Net worth
  2. Demand high opening balances
  3. Demand past experience within the financial markets

The above three points have been taken from the proposal paper issued by the FCA - it has no baring on if they actually pass into regulation.

18

I donā€™t know about that; am not following the news and focusing on trading and praying both of which done in the middle of the night Honolulu being the time zone it is. DJT supports some kind of ā€˜haircutā€™ his words on Dodd Frank. As for giving up in despair, I have never run into any problem using an off shore broker other than having them give up. This yearā€™s tax return in the US included the following new question I donā€™t recall seeing last year on TurboTax: do you have an off shore bank account [includes brokerage]? If yes, is it over $10,000? I said ā€˜yesā€™ and ā€˜noā€™ truthfully. Right now I am very happily ensconced with an off shore broker - the move to it was helped by Clintā€™s stellar thread here on babypips, about what US traders have in the way of overseas options. So some of the response to this ominous news by UK traders I am sure is like it was in the US. US traders with a certain kind of ā€˜attitudeā€™ went ahead anyway, did the research, made adjustments and kept the almost exact conditions they want. Our compatriots across the pond, two ponds in my case, I believe are resolute. Theyā€™ll find a way.

19

As mentioned in an earlier post, one of the potential problems with using offshore brokers, regardless of the underlying reason for doing so, is that the specific regulatory authority in place for the specific offshore broker will have different levels of protection compared to what perhaps the FCA offer.

This may not be a problem to some people, or indeed it may not even be top of ones agenda when carrying out due diligence checks - Personally, Iā€™d have this as a priority tick box exercise before looking any further.

Then again, lets hope it doesnā€™t quite come to this extreme :slight_smile:

20

Well, no point startingā€¦time to find something else to do. Because I am not moving country for a standard account that I can get today that will be gone/restricted tomorrow.