How will CFD Trading be Effected by European Regulations in 2018

By their very nature, retail trading and vehicles such as CFDs (contracts-for-difference) represent risky business. After all, they tend to operate in low-growth consumer markets, while they also make it difficult for investors to enter into emerging marketplaces.

Retail trading is also likely to be significantly impacted by regulatory measures and compliance issues, which continue to change the landscape for investors and move the boundaries of best practice.

This is particularly relevant in the current climate, with European regulators keen on toughening standards in the retail trading market and protecting online traders.

In this post, we’ll ask how CFD trading in particularly will be affected by proposed regulatory changes in the year ahead:

An Extension of UK Plans – What does the Regulator have in Mind?

As part of a proposed continent-wide overhaul, the European regulators will strive to provide guaranteed loss limits to customers in 2018, while targeting specific products that are deemed to carry excessive and disproportionate risk. This follows a sudden UK crackdown last winter, which hit the capital hard and caused many market leaders to lose around a third of their share values.

In more specific terms, regulators want to restrict the amount that customers can borrow to leverage their bets, while they have also staked a claim to restrict the core marketing of targeted products. To achieve this, they’ve also honed in on high-liquidity markets and derivative products, including the foreign exchange and CFDs, where investors can speculate on the performance of assets without assuming ownership of the underlying vehicle.

The proposed changes will also be extended to binary options, which enable investors to bet whether the price of a chosen financial instrument will be higher or lower than a fixed threshold. Spread betting may also come under increased scrutiny, and there’s no doubt that the financial market could be braced for significant changes in the near-term.

How will this Impact on CFD Trading?

At first glance, these changes will place considerable demands on trading platforms such as Oanda. After all, these platforms offer access to a range of marketplaces and trading vehicles such as CFDs, so they will be required to assume some responsibility for helping investors to cap losses and trade responsibility.

As the move has also been designed to create a united regulatory front to a growing number accessibly and cheap markets, we’ll most likely see the implementation of measures that tackle lightly regulated spaces and safeguard traders. This will restrict market access for CFD traders, with a view to capping losses and creating a more transparent industry.

■ How will CFD Trading be Effected by European Regulations in 2018?

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