Darwinex, an FCA-regulated social forex broker, issued a comment criticizing the decision of Germany’s market and financial services regulator BaFin to introduce a mandatory negative balance protection on contracts for difference (CFDs) for retail clients.
According to Darwinex, CFDs are “good” and “BaFin stigmatizes a good instrument – one that solves a real issue faced by genuine investors”.
In its statement, the brokerage explains that CFDs are convenient investment products for retail clients because they offer granular investment opportunities for small investors who are generally excluded from the stock market available only to large institutional clients and overcome the limitations of cash-instruments not designed for trading by retail investors.
According to Darwinex, however, the introduction of negative balance protection by BaFin might “spook” retail investors, despite the good intentions.
The brokerage notes that the real problem with CFDs are the unscrupulous providers who rig the game and bet against retail customers with liquidity barely reaching the real market where price level, spread and funding rates are set. “The issue is that some CFDs are offered as an OTC instrument, without a proper price finding mechanism with consumer guarantees in place”, Darwinex writes.
Darwinex was set up in 2012 as TradeSlide and was operating as a regulated investment adviser. In the spring of 2014, however, it overhauled its platform, obtained a broker license from UK’s regulator FCA and rebranded itself as Darwinex.
The social platform of the broker allows users to upload data on their performance and strategies, which are evaluated through a set of criteria and if deemed eligible, turned into “Darwins” – trading strategies which can be followed by investors.
Currently Darwinex has a trading volume of around $10 billion and lists nearly 1000 trading strategies.