Most Recent Regulative Updates in Retail FX
When 2016 was coming to a close, some did not expect forex regulatory bodies to make the changes they did. Others saw it was a long time coming. Either way, it happened and 2017 saw many forex brokers having to rethink their marketing strategies among other things. Some were worried, others were not. Here’s what happened.
As 2016 was closing and many were celebrating or just dreading the holidays, major forex regulatory bodies, Financial Conduct Authority (FCA) in Britain and Cyprus Securities and Exchange Commission (CySEC) issued circulars informing their brokers of pending changes to their regulations.
The first of these changes was the ban on bonuses. Brokers have used bonuses as a key component of their marketing plan. It’s how many brokers attract and keep clients however both CySEC and FCA have observed that these bonuses carry with them very stringent terms which often don’t benefit traders.
On top of that, bonuses have been used by many brokers as a means of gaining clients without actually improving trading conditions. Another issue that many traders have also encountered that both FCA and CySEC have been made aware of is that because of the terms that many brokers’ bonuses come with, it makes it near impossible for traders to withdraw their profits.
At the end of the day, the thing which was supposed to benefit traders often times worked against them, especially newbie traders. And because regulatory bodies’ main purpose is to protect traders, they’ve banned their brokers from using bonuses. This will undoubtedly have a major impact on the marketing and regular operations of forex brokers.
Another major update is the lowering of leverage across the board. FCA has proposed that its brokers lower leverage and cap it at 1:50 for many of its providers’ assets. It has also ordered that its brokers cap leverage at 1:25 for traders who do not have 12 months of active trading experience.
FCA has also proposed that its brokers display the profit-loss ratio and history of all of their products on client accounts so that all traders can see the history and performance of these products. This is to curb the major losses suffered by newbie traders who often use high leverages without understanding the product, how it works or without fully understanding leveraging.
CySEC, on the other hand, has proposed that all of its brokers have a default leverage of 1:50. It stated that if clients wish to increase their leverage then they would have to take an aptitude test to do so.
These changes to both the use of bonuses and leverage will definitely affect the future of many forex brokers. Some will survive while others will not. The industry has mixed responses to these changes but they cannot be denied. Only time will tell how these will truly impact brokers and traders in the long run.