FCA Warning Shakes CFD Brokers
Britain’s Financial Conduct Authority (FCA) announced on Wednesday that is has ‘areas of serious concern’ in the country’s contracts for differences (CFD) market, sending stock prices lower for the country’s largest publicly-traded companies. Among the brokers hardest hit were IG Markets, CMC Markets and Plus500. IG Markets was initially the hardest hit, with stock prices falling from 779 GBP at Tuesday’s close to 723.50 GBP on Wednesday, before bouncing back to 755 GBP. As of 12:17 p.m. GMT, shares of CMC Markets were down 3.81 percent.
The FCA announced that it sent a letter to all CFD providers to make sure that they ‘pay due regard to the interests of customers and treat them fairly.’
According to an FCA review of 34 CFD brokers over a year’s time, most retail customers who purchased CFDs lost money. As reported by Reuters, several of the brokers have already committed to stop offering CFDs on a discretionary or advisory basis. According to current European Union rules, there is no upper limit on the available leverage for CFDs, making it possible for traders to place high-risk trades which can result in huge profits, as well as devastating losses. In addition to the risks made possible by high leverage, the FCA has voiced its concerns about the way CFDs are marketed and the imperfect due diligence processes that most CFD brokers employ.
European markets were lower across the board by midday on Wednesday, with most sectors trading in the red. France’s CAC was down 0.51 percent and the DAX was down 1.01% as investors weighed corporate earnings and newly-released data.