Financial firms making big profits from controversial CFD trading say new rules controlling the market are too strict.
CFDs – contracts for a difference – include spread betting on how a stock price, commodity or currency moves over a specific time and rolling spot foreign exchange trades.
European regulators claim only 24% of speculators win on CFD trades.
To combat the mounting losses suffered by consumers, the Financial Conduct Authority (FCA) and other European Union regulators are forcing CFD platforms to treat their customers more fairly.
The regulators claim the trades are stacked against consumers and many traders do not realise the risk of losing their money.
The FCA is warning potential CFD speculators to heed warnings about the risks before going ahead.
Wrong investors targeted
But Peter Hetherington, CEO of IG Group, one of Britain’s leading online trading platforms, says the new rules are likely to cost his company up to £50 million in lost revenue.
He also claims they are wrongly targeted at wealthy, experienced investors and not amateur traders.
“Our product is for the 1%, not the 99%,” said Hetherington. “We have significant wealth barriers – if you don’t have enough money, we won’t open an account for you.
“I’ve never known our customers to be as enraged as they are now. We’ve had 2,500 responses from clients since the changes were announced.
“The way we see the problem is the product is being sold to the wrong people.
“When you have Cristiano Ronaldo tweeting his 68 million followers to trade through a Cypriot online brokerage that happens to sponsor him, you have a problem.
“You can say with some certainty it is not a good idea for most people following Ronaldo to do that.”
Binary options ban on the way?
The European Securities and Markets Authority (ESMA) is calling for evidence on potential product intervention measures relating to CFD trading across Europe, including the UK.
The action also asks if binary options and cryptocurrency CFDs should be included in the inquiry.
“The potential measure under consideration is a prohibition on the marketing, distribution or sale of binary options to retail investors,” said an ESMA spokesman.
Submissions should reach ESMA by midnight on February 5, 2018.