FCA concerns on Spreadbetting

[peakoil]

Today's news is that the FCA are not happy that so many particularly inexperienced retail punters are losing money on spreadbetting and CFD's.

They are asking for leverage limits particularly for inexperienced clients, no more opening bonuses, and greater emphasis on the risks involved.

As an experienced spreadbetter I trust none of the changes being proposed will have any affect on those of us who are like myself. However, I do also feel, given what the FCA are saying, that there should be greater restrictions on new accounts - especially where persons have no experience trading any margined instruments (including spreadbets). It is too easy, after all, for someone with no experience to 'blow their load' again and again, and to keep the FCA content (at least) surely more needs to be done.

Perhaps spreadbet companies should think of offering a limited risk account, with substantially reduced leverage, for *all* new account openers - *unless* they can prove prior experience with any margined products. Until now, as long as one accepted a disclaimer a newcomer can have the same exposure as any experienced client, and we all know what happens to most newcomers when that happens...

It might well be better for everyone that inexperienced clients should have their trading exposure restricted until they have garnered enough experience, which could e.g., at least be for the first six months to a year. Then and only then will they be able to join the rest of us - again on full understanding and acceptance of the risks involved.

Or does anyone have a better suggestion? Restricting newcomers to demo accounts only, just wouldn't be realistic. But it's clear that the FCA are demanding that something has to be done, to protect the most vulnerable, when a quoted 82% of retail clients lose money.

PS The fact that so many fund managers lose money too, is (..ahem) of course, another day's work altogether...

 

[timm]

https://www.fca.org.uk/news/press-releases/fca-proposes-stricter-rules-contract-difference-products

It's disappointing that the FCA think that most people losing is a problem. This is not investing, it's speculation. That's how it works. It's competitive. Only the best can win. You don't see sports regulators worrying because most people don't win. Fairness is what matters. That is what the regulators are there to enforce.

However, the proposed leverage limits look reasonable and I hope the newbies will still be able to lose their money fast enough to keep the retail firms in business. I don't want to have to put down a huge deposit and start paying commissions, platform fees, etc.

 

[peakoil]

@timm - absolutely agree. Albeit, I'm still hopeful that because these are 'proposals', they will be open to further debate; Not least because, the industry itself and at least a few of the successful 18%, will no doubt want to add to this debate too.

While overseeing a fair playing field is always to be welcomed, it makes no sense that a retail client with many years of experience suddenly needs to be 'protected' in some of the ways being proposed - such as by arbitrarily increasing the leverage requirements in such a heavy-handed manner.

A maximum of 50:1 leverage will, in some cases, effectively triple the margin required to take a position on the FTSE 100. As someone with many years experience, such a proposal does not help me in the slightest.

Anyway, let's hope that sense will ultimately prevail.

 

[forker]

It's simple, don't spread bet.

 

[peakoil]

@ forker well maybe this isn't the thread for you, but spreadbetting still has a considerable fan base. According to Forbes, the failure rate for new business startups is even greater than that which concerns the retail spreadbetting market. Or, to put it another way - statistically speaking, with all other things being equal it could be argued that a person's chances of succeeding ultimately at spreadbetting, are greater than the 90% failure rate which Forbes reported is the reality of new business startups these days. Perhaps they should also look into curtailing adults' attempts at setting up any new businesses from now on, especially given the logic behind the above!

And what's more, you might have noticed that this is ultimately about *both* CFDs *and* spreadbetting.

Nonetheless, if a person develops the skill, over time, to do well at either, then you might even accept that there are not enough reasons why he should wish to cease using that skill.

 

[ffsear]

It's simple, don't spread bet.

10 years ago maybe! the market is too competitive now. spread betting firms having nothing to win by ****ing over their clients.

 

[tomorton]

10 years ago maybe! the market is too competitive now. spread betting firms having nothing to win by ****ing over their clients.

Agreed. Successful traders won't fail if they switch to SB, unsuccessful traders won't succeed if they switch to direct access.

 

[Splitlink]

It's simple, don't spread bet.

That is a simplistic answer and not everyone is like you and me, My circumstances are the only ones that I can speak for. I've been around a long time, doing several spreadbet trades per day. I have good days and bad but am a speculator/trader and cannot foresee myself ever going broke doing this.

As someone has, already, posted, what is needed is a watchdog that watches. I am not sure that we have one. There are lots of dodgy firms around,

If we can let people vote for a Brexit and other referendums on a whim, because it is their right to do so, then those same people should not need protection when spreadbetting.

 

[forker]

Spread betting used to be pitched as tax free to attract people. Why else would you trade through a broker that is ultimately on the other side of your trade. The problem is it is only tax free if you do it for fun and not in a professional capacity. If you don't believe me then read the following statement taken from HMRC's site

‘To be taxable, the spread betting wins must come not merely from an opportunity presented by a trade, they must arise from the carrying on of that trade. Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done.’

Tax free used to be the sale pitch but is no longer the case. Since that benefit has been removed for any trader making money consistently, why would you trade with them since they are taking the other side of your trades?


Regulation for spread betting companies is slightly different than your traditional broker. As an example they are required to offer a fair and accurate reflection of market which doesn't apply to traditional brokers. For most people the trading process is seamless because they are in one of 2 books at the firm. The first book is for traders categorized as "going to fail". If you are in this book your orders will be filled with no re-quotes outside a fast moving market.

If you are successful on a consistent basis then you will be in a different book. Traders in this book have their orders routed to a dealer. Why does this happen? well they are taking the other side of your trade and if you are constantly winning then they are losing. So they need to either directly hedge you (if its a large trade) or pool positions and hedge the pool. The difference contrasted with a traditional broker is execution speed and re-quotes. Why any trader making money consistently wouldn't want to use a broker where their trading process is less seamless than a traditional broker is obvious.

As for them being trustworthy and operating within FSA rules (i spent 2 minutes and found these. Imagine what i would find if i spend a day researching)


- CMC hit with record £850,000 fine for ‘flagrant breach’ of regulation

- CMC ordered to repay clients after complaints about charges (the firm admits as part of its defence that the platform was unable to provide accurate quotes)

- The Financial Conduct Authority fines FXCM UK £4 million for making ‘unfair profits’ and not being open with the FCA

- IG accused of prioritising own trades during Swiss franc frenzy

 

[peakoil]

@forker, with respect, this thread is more to do with the FCA's recent proposals regarding both spreadbetting and CFD's, as opposed to a debate solely on the merits of spreadbetting itself; Much as that debate too, may well continue on and on...

Nevertheless (& to respond to you briefly) almost all of us know already that to be entitled to the full benefits of spreadbetting, it must not be your only income. For those who wish to trade full time and have no other source of income, then of course they should seek the alternative route to market. In that regard, the issues you raise are fair enough.

Secondly, (The Swiss Franc debacle notwithstanding, given that it was an extremely rare 'Black Swan' event - which caught everyone off guard - not just the spreadbet/CFD community) it's a present day myth that everyone on 'A Book' has their trades delayed - just because they may also be hedged on the underlying market. The evidence remains (as you should well know from being around long enough) that those who are at all likely to suffer the effects of dealer intervention, are those who are seeking to profit *solely*/repeatedly from scalping, arbing and/or pricing inefficiencies. For at least the past decade, as ffsear reminds us, owing to the positive effect of great competition within the market, anyone who wishes to play a fair game, will find that execution speed is not compromised, regardless of where they are classed in the book.

Mistakes were definitely made in the past, but that they've been the foundation for both change and progress within the industry, is surely a good thing, when all is said and done. Consider, for instance, the relative quietness of this forum of late, which is testament, in itself, to these facts.

As for the topic of this thread, I thought Splitlink's quote was so apposite, that it's worth repeating now:

"If we can let people vote for a Brexit and other referendums on a whim, because it is their right to do so, then those same people should not need protection when spreadbetting."

What's more, no matter in what field of life you care to examine, whenever 'success' is up for grabs - the losers are many, and the winners will be few.

 

[forker]

it must not be your only income. For those who wish to trade full time and have no other source of income, then of course they should seek the alternative route to market.

What part of the HMRC rule don't you understand? forget it i am talking to morons

 

[peakoil]

@ forker Obviously, and on the contrary, you've misunderstood what I've written. Having said that, as your contributions are going in a direction which is less than inspiring, I trust few would miss you on this thread. IOW, this poster sincerely hopes that you put your talents to use elsewhere on the forum.

 

[tomorton]

The advertised tax-free aspect of SB is true but has always been a red herring.

Very few SB customers have ever made sufficient SB profit for this to be of interest. In any case, taxation on Sb profits might not be all negative. My then accountant assured me long ago that if I ever made consistently high profits from any forms of trading he would try hard to convince HMRC to teat me as self-employed, with this as sole income, and it would be financially to my benefit. But he also said HMRC had rejected multiple such applications from full-time traders so it was an unlikely outcome.

 

[pigbear]

Some controls are overdue but the Spreadbet companies can get round this by getting newbies to sign disclaimers on how much they can lose. Also the accounts shutdown if a newbie say loses £1000 or agreed pre-set level in a month. They should also restrict mobile access to newbies unless they opened the position on PC.
Finally the Spreadbet companies can always lean on the Tory government since I believe they are quite large donors.

 

[adilfx]

As traders’, what's the general consensus on using leverage?
Without leverage, of at least 1%, will you start looking for alternative investment products, if so are there any available?
Is there anything you think the regulator should do apart from raising margin to accommodate you and keep CFD trading as it is?

Please share your viewpoints as we are compiling the data for when we respond to the FCA, i personally want consumers to have the choice and if they feel comfortable with higher or lower leverage then they should be able to make that choice, indeed for newer traders that may not be accustomed to the notion of leverage then limitations are practical, but one bad apple should spoil the party for us all.

 

[luckystrike23]

All accounts should be limited risk unless one is a professional client - this is in itself a problem because a provider could in theory easily get the client to agree (tick) that he's a professional client.

No one should lose more than the amount on his account - this would make providers think more carefully and be more responsible with leverage and margins. No one should be sued by a CFD provider because he lost a lot more than was in his account. All these stories about people who lost a lot from Black Swan events only tarnish the industry as they end up published in the media. And trading should not be gamified - some of those providers hide fees so its difficult to figure out exactly how much you are getting charged.

Lastly, these are specialised products not appropriate to advertise on the mass media - so no TV Ads and no football sponsorships.

 

[peakoil]

With respect, to suggest that "all accounts should be limited risk" without regard for age, decades of experience and status, is something I could not be more opposed towards.

Nonetheless, as some of us are aware, the German regulator, on reviewing the spreadbet industry very recently stipulated that the industry should change so that persons should lose no more than the funds in his/her account. On the face of it, that might seem to be quite a fantastic proposition for all of us. Some might even see such as a "have cake and eat it" proposition, but it most certainly wouldn't be!

Firstly, let's not forget that all black swan events are as out of the control of any spreadbet company, as they are for you and me. In other words, people should also consider that to expect the spreadbet firms to take on the added risk of all potential black swan events, while continuing to offer the same slim spreads, and generous margins, we've all become accustomed to using, is just not in the slightest bit realistic. That is to say, limited risk accounts will, undoubtedly be subject to wider spreads, and more demanding margin requirements - at the very least. The spreadbet companies are running a business after all. Nevertheless, slim spreads, fast execution and current margin levels are all absolutely vital to experienced clients, otherwise spread betting would be nowhere near as attractive as it always has been.

Yet of course newcomers &/or anyone else who feels that limited risk suits their needs, should unquestionably be protected, or, at the very least - offered protection, at least until they have gained sufficient experience; however, those of us who have had accounts open for many years must be given the option to continue as we've done up to now, on condition that we unquestionably continue to accept the potential liabilities to which we are open.

As for the proposition that advertising must be prevented with regard to spread-betting, I can't see how that would work, or would stand up to legal challenge - especially if other forms of gambling are permitted to continue advertising - without additional restrictions. We're talking about an industry which, in its entirety is contributing around £2.3BN (2014 figures) to UK GDP, and has an economic footprint of around £5bn. Also, because of the vast amounts of money involved in gambling advertising, this poster frankly won't be holding his breath for any changes in this area - no matter how 'good' some of us may believe such to be... Then again, it wouldn't be a bad thing at all, if greater prominence were given to the indisputably true facts within * all * gambling advertising - ie., that the great majority will lose, and that help is available to those few who develop gambling problems - help which, I might add, should always be funded, at least in part, by the industry itself.

 

[kalott]

maybe a solution would be that when using high leverage you must use a guaranteed stop-loss?

especially less experienced traders

 

[kalott]

https://community.ig.com/t5/Latest-...ation-and-request-for-your-feedback/m-p/10752

 

[Phylo]

http://www.forexfactory.com/showthread.php?p=9347403#post9347403