The Financial Conduct Authority is proposing stricter rules for firms selling contracts for difference (CFD) after finding 82% of retail customers in a sample lost money.
The aim is to improve standards across the sector and make sure that investors are suitably protected.
CFDs are complex financial instruments offered by investment firms, including spread bets and rolling spot foreign-exchange products.
Following an increase in the number of firms offering CFDs, the FCA is concerned that that more retail investors are opening and trading these products without understanding them.
The FCA’s analysis of a sample of client accounts for firms offering CFDs found that 82% had lost money on these products.
The FCA proposes measures aimed at limiting the risks of CFD products and ensuring clients are better informed.
These include standardised risk warnings and mandatory disclosure of profit-loss ratios on client accounts by all providers to illustrate the risks.
The FCA will also reduce the amount of leverage on offer to CFD investors, which can currently exceed 200:1. The proposed limit will be 50:1.
“The FCA also has concerns that binary bets pose investor protection risks and question whether binary bets meet a genuine investment need,” said Christopher Woolard, executive director of strategy and competition for the FCA.
These proposals come after six years of supervision work by the FCA that identified instances of poor conduct across the CFD sector.
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