While increased regulations are providing better protection for retail traders, it is likely that many brokers will cease to exist in a few months’ time as a result, meaning consumers also need to understand what they want from a trading platform and what they should look out for in order to reduce their risk.
2018 has become the year of the regulation. We were all bombarded with GDPR emails a few weeks ago and, for retail traders, ESMA has announced that as of the 1 August 2018, there will be a raft of new measures designed to protect them. While this means there has been a lot for organisations to take on board in the past six months – and CFD trading platforms in particular – we welcome all of these changes as they enforce a fairer and more ethical environment for retail investors.
Facebook and Google both recently announced that they will be restricting advertising from CFD platforms in territories where they are not registered, meaning that consumers have greater protection in terms of their investments.
More recently, it has been reported that the FCA has initiated a further tightening of its rules that will force out of business a large number of brokers that hold a 125k licence. Poorly capitalised firms that cannot provide the appropriate negative-balance protection for clients will not survive and there are 23 125k licenced CFD firms in the UK alone. Many brokers will have no choice but to leave the market over the coming months, with traders needing to choose a new provider.
This is a very positive move from a consumer protection angle. It’s important that those choosing to trade understand these regulatory changes and how they will impact the platform they use. Deciding on the right provider for them is essential to minimising their risk.
One of the most important decisions in trading is choosing the right provider to trust with your assets. Before selecting a retail trading and investment platform, you should consider the following:
- Full and immediate compliance with the upcoming ESMA regulatory changes:
- Negative balance protection – essential in preventing traders losing more money than they invested
- An individual trade closeout rule – so that traders will always know the maximum loss potential
- Default maximum leverage limits that reflect the volatility of each asset class
- A hedged business model that aligns the interests of the provider with the interests of the trader – not simply taking the other side of the trade
- Quality education both on:
- - the workings of the financial markets, such as Capital.com’s Investmate App
- - and on how to improve trading performance and learn from past mistakes, such as Capital.com’s proprietary AI-driven SmartFeed
- Customer service there when you need it – real people to speak to when you have an issue or a question
We are pleased to see the huge changes taking place currently in the world of retail trading, designed to improve the outcomes for consumers. Retail traders generally understand the risks involved in trading and have historically accepted the service offered to them by various providers. However, consumers now have the power to reduce their risk and choose a provider that puts their success at the heart of its offering.