Darwinex suggests UK FCA should force CFD trading to on-exchange only

Darwinex suggests UK FCA should force CFD trading to on-exchange only

Do not invest more money than you can afford to lose.


Social trading broker Darwinex said on Friday it considers the proposed UK regulatory amendments concerning trading in forex and contracts for difference (CFDs) as a good move, but one which rather tackles the problem, but is not enough to deal with it altogether. Instead, the regulator should consider more radical changes, such as limiting CFD trading to exchange-traded only.

Following the recommendations and guidelines of the European Securities and Markets Authority (ESMA) from mid-October, the FCA is setting a new leverage maximum of 50:1 (25:1 for inexperienced traders with less than 12 months of trading). It is also banning bonuses or other benefits to promote risky trading instruments.

The problem is, in Darwinex’ view, that the FCA asks the wrong questions – it should examine why people actually lose money, instead of coming up with ways to limit losses. This way, the regulator “shoves the mess under the carpet, but it remains a mess.”

” The problem is it feels as though they asked ‘How much money do people lose?’ instead of ‘Why do people lose so much?’. And it feels like that, because the FCA have gone about limiting the loss (=taming the dragon), instead of tackling the problem at root,”  Darwinex said in a statement.

The Cyprus Securities and Exchange Commission (CySEC) has also announced it will alter its requirements in line with ESMA’s recommendations. While the new requirements set by the CySEC sounds rather recommendation, the UK watchdog uses a more compulsory tone.

“Has anyone ever heard of a Futures/Equities broker offering 200:1 leverage, deposit bonuses, or any of that crap? So there you go: futures are listed on an Exchange so that futures brokers have no way (=incentive) to deploy their capital or information edge against their own customers. So here’s our proposed change: How about you force CFDs on Exchange?,”  the broker said.

Darwinex also noted that the it is a good thing that the FCA is not the only European regulator to take action in that direction, and there are rather cross-section collaboration and efforts within several European markets (France, Poland, and the UK).

“This is GOOD. It was about time, and also, it’s appropriate that it’s done in a concerted approach with all national regulators. If the FCA single-handedly took measures, and e.g. the Cypriot regulator didn’t, we’d be in an even deeper mess with even more Cypriot firms leveraging passporting rights to beat FCA regulated brokers with unfair advantage. So – well done on coordination,” Darwinex commented.

Darwinex is not the first broker to express an opinion on the matter. Shortly after the FCA proposed the amendments, some major UK brokers – IG Group, CMC Markets and Gain Capital’s City Index formed a CFD providers association with the aim to unite UK brokers in discussing and fighting the planned changes. The lobby organization aims to facilitate brokers in communicating their concerns and worries.

Darwinex is part of Tradeslide Trading Tech, a company licensed and regulated by the UK Financial Conduct Authority (FCA). The social platform supports trading in forex and contracts for difference (CFDs) instruments. Darwinex was set up in 2012 but started operations in 2014.

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