UK Spread Betting Companies Ready for 2018
The Financial Conduct Authority (FCA) is looking to make the spread betting industry safer for traders in 2018. While the FCA believes that there are areas of concern among certain spread betting companies, the watchdog authorities working hard to make the UK spread betting scene more trader friendly. At the time, the FCAs announcements sent a few jitters through the markets, and several leading spread betting companies on the FTSE 100 index and the FTSE 250 index so their prices temporarily drop. However, the performance of the big 3 companies remains strong, as evidenced by the following pricing:
- IG Group – is currently trading at a price of 759.50 pence (Friday, 12 January 2018)
- CMC Markets – is currently trading at a price of 155 pence (Friday, 12 January 2018)
The FCAs letters to each of the chief executive officers on 10 January prompted speculation that a clampdown would be taking place. On the day, spread betting companies gave up 7% but quickly recovered losses to post a strong comeback. The overarching purpose of the FCA letter was to inform spread betting companies that they must adopt client-friendly practices, prevent overexposure through leverage, and be responsible trading enterprises.
The FCA mandates that spread betting companies must put client interests and well-being before their own, by clearly highlighting the risks associated with leveraged financial assets. Since CFDs (contracts for difference) are derivatives trading instruments, clients do not purchase the underlying asset. They simply speculate on price movements of the assets in a bullish or bearish fashion. The FCA issued additional comments stating that they are of the opinion that a few firms currently offering spread betting and CFDs are not meeting with FCA regulations.
CFDs are financial products available on a wide range of assets, including currency pairs, indices, commodities, cryptocurrency, stocks, bonds, options etc. Given that there is no stamp duty, and losses can be written off against profits, there are many inherent benefits to trading CFDs rather than owning the asset outright. The CFD trading industry is maintained through the European Union (EU) which does not currently have limitations on leverage. Spread betting allows clients to trade positions much larger than the cash balances in their account. This increases the profit potential of the trades but also amplifies the potential losses that can accrue.
ESMA About to Weigh In
The ESMA (European Securities and Markets Authority) is currently working to make marketing activity for CFDs across the EU compliant with new requirements. From its perspective, the FCA focused on the lack of due diligence that a handful of spread betting companies embrace. The FCA has conducted extensive market research of the business practices of some 34 spread betting companies over the past 12-months (January 2017 through January 2018). The FCAs main gripe with a few companies comes in the form of the retail purchases of CFD -related products for Forex, cryptocurrencies, stocks, commodities etc. The FCA is the sole authority on spread betting in the UK, and it acts in the interests of the public. According to the FCA, one of the spread betting companies had its CEO also filling the role of head of compliance – a clear conflict of interest.
What are your thoughts of the UK spread betting industry? Do you feel that this industry should be subject to more constraints, or left alone? Should traders be required to complete courses before trading for real?
Want to learn more about the UK’s top spread betting brokers? Check out our full comparison!
About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.