Uk forex regulation

In December , the Financial Conduct Authority FCA followed in the footsteps of the Cyprus Securities Exchange Commission CySEC in imposing strict new regulations on the trading industry. For starters, currency traders engaged in derivatives products such as CFDs will be limited to a maximum leverage of 1: Additionally, a ban on trading bonuses is in place.

This dramatically changes the landscape for CFD traders. The crux of the issue, according to the FCA, is that rolling spot FX products are highly complicated financial trading instruments.

Most traders who engage in trading rolling spot Forex do not adequately understand the industry. It should be pointed out that the FCA does not intend to ban FX trading in the UK — this is a multitrillion dollar per day industry globally. London is the epicenter of currency trading, and many derivatives products permitting FX trading will simply face stricter regulatory constraints.

The FCA wants to make currency trading safer for traders. To this end, the FCA will be applying pressure on brokerages to detail the historical performance of FX CFD trading accounts. Many ideas are being floated about, but one such proposal is a maximum cap of 1: The FCA defines an inexperienced trader as one with less than 1 year of trading experience in CFDs.

Consider that prior to the FCA regulations, currency traders in the UK could enjoy leverage of 1: With leverage, your initial capital outlay is significantly less than the value of the trade. By limiting the available leverage, lofty profits and substantial losses can be avoided.

This will make the industry less capitalized, less liquid, and less viable for unscrupulous CFD and FX trading brokerages.

More importantly, the FCA is conducting an in-depth analysis of all the product offerings at brokerages, and assigning risk-related leverage caps on different products. For new traders, the new FCA regulations are particularly discouraging: For skilled currency traders in the UK, the FCA regulation is unlikely to have too much of an impact. Retail clients with a sound understanding of the financial markets will be able to enjoy a wider range of services at their preferred online brokerages.

This is because FCA regulation is fomenting ingenuity, innovation, and product differentiation between providers. With bonuses taken out of the equation, Forex brokerages will now be seeking improved educational resources webinars, seminars, economic data releases, trading courses, e-books etc.

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CFD-related products will inevitably be subject to stricter rules, given the many shortcomings in the industry. The strategy and competition executive director of the FCA, Christopher Woolard stressed that traders were blithely unaware of the highly complex range of products available at CFD brokerages. He drew the ire of the binary options industry by questioning whether binary bets were genuine investments.

One of the most notable changes that FX brokers are putting into practice is adequate disclosure of risk warnings. Some analysts believe the FCA should be targeting the reasons why traders are losing money in the first place, and not simply limiting their losses with decreased leverage.

CySEC — the Cyprus Securities Exchange Commission — regulates binary options trading, FX trading and CFD trading in Europe, and it has considered the ESMAs recommendations.

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Unlike CySEC, the FCA has made the recommendations mandatory. Various other regulatory authorities in France and Poland are going to be collaborating on currency trading in general.

The National Regulator approach ensures that a uniform practice will be adopted in currency trading across the UK and Europe. Since the UK remains part of the EU — the Brexit has not been initiated yet — passporting rights are still an issue. If the FCA refuses to allow high leverage, but CySEC does, passporting rights would avail these services to UK traders.

The UK general election takes place on Thursday, 8 June. A big part of the reason the sterling is being shorted by currency traders is the recent release of data by the ONS.

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The ECJ European Court of Justice is paving the way for a worst case scenario — a hard Brexit. It has issued veto authority to multiple regional and national parliaments on UK trade deals.

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