Wrong bet

6 December 2016 By Liam Proud Follow @liamwardproud

The FCA is set to cap leverage punters can take when spread-betting. It shouldn’t have been a shock given EU peers had questioned a product in which 80 pct of clients lose money. Brokers’ 30 pct share falls imply they suffer from the same mindless optimism as their customers.

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The UK’s Financial Conduct Authority (FCA) on Dec. 6 proposed tougher rules for retail spread-betting contracts called “contracts for difference” (CFDs), saying that 82 percent of customers using them lose money.

CFDs are agreements between two parties to exchange the difference between the opening price and closing price of a contract.

The proposed measures, including standardised risk warnings and mandatory disclosure of profit-to-loss ratios on client accounts, will affect providers such as IG Group and CMC Markets. The companies would also have to leverage at a maximum level of 50:1 for all retail clients and regulate leverage caps according to their risks.

IG Group released a statement saying that it will respond in accordance with the FCA’s timeline of March 2017, and that its initial view is that certain proposals could “enhance client outcomes”.

“The Company notes, however, that the FCA's proposals do not appear to directly apply to firms operating from outside the UK offering CFDs and binaries to clients in the UK on a cross-border services passport from another EU member state,” the statement said.

IG Group was down 31 percent as of 1028 GMT and CMC was down 29 percent.

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