What does the FCA’s statement on contract for difference products and CP16/40 mean for you?

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A while ago, the major CFD brokers took a battering when the FCA out of the blue said it was going to curb new client bonuses and put restrictions on the amount of leverage offered to new customers.

Now, they have said that following an announcement from ESMA they will be delaying the changes until 2018.

The news basically halved the value of major brokers like IG, CMC and PLUS 500 because if you reduce the amount of leverage offered to a customer it directly reduces the revenue potential from an account.

Previously an account with 1:500 margin could trade £500,000 worth of forex exposure with only £1,000 on account. If this is then capped at 1:50, it means that the client can only trade £50,000 worth, therefore reducing by 90% the spread revenue generated.

There is a of course a danger that broker that don’t use a “B book” may introduce one to make up for lost revenue.

The ban on deposit bonuses may end up being a good thing for respected CFD brokers as they would have previously lost out on new client aquisitions to smaller upstarts offering such bonuses to entice new customers.

So for new brokers the question is “what incentive can you offer a new customer that the established brokers can not if there is no difference in price and leverage?”

For customers, it means they still have the option to trade with very low margin deposits for the meantime.

The statement from the FCA can be read on their website here.

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Richard started the Good Broker Guide in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously acting as multi asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2000.