As a result, consumers are highly advised to be completely aware of the complexity and high-risk nature of CDFs before making any decisions about investing in them. In November, Central Bank warned of the same and urged investors to be very keen when dealing with Contracts for Difference.
Volatility Of The Market
In Ireland, the CFD market has a thorough inspection. During the inspection, the Central Bank noted that there were several issues to do with execution-only sales. In its view, investors who have a low-risk enthusiasm should not carry out CFD trading. The trading is somewhat unsuitable for such investors because of the volatility of the market. The unstable nature of the CFDs makes it risky since there are high chances of consumers losing more than their initial investments.
This warning about CFD trading by the European Securities and Markets Authorities is considered vital and timely. Retail investors have sufficient evidence pointing to the high-risk probability of consumers losing their investments.
In CFD trading, investors are allowed to trade on assets without even owning them,and it can result in limitless losses considering that the startup capital is very minimal. Additionally, there are no weighty regulations in the sector, thus controlling it might be challenging.
Sustainability of CFD in Germany
In Germany, CFD trading is considered to be too complex; and therefore, its suitability is being challenged for retail investors. The development of CFDs is being monitored closely and, in the near future, some sort of intervention on the market should be expected. The intervention could be in a number of ways including:
• Brokers’ executions being monitored more keenly
• Introduction of account airbags – traders cannot lose anything more than what is available on their accounts
• Leverage reduction – possibly from the now 400 to 50
• Or even Prohibition of CFD trading entirely.
Immediately there is any sense of a scandal in the German market, or even in the press, the intervention plans could begin immediately. A scandal means anything like a big investor going bankrupt or even something like German traders being targeted by more binary brokers.
With the known German tendency of reducing over the counter tradings such as CFDs, this is not anything new to the German market. The regulated exchanges do better here, and they are likely to increase in the future.
Hopefully, CFD trading will not be banned from the German markets. It is better if brokers are monitored more closely or even if leverage is limited but not a complete prohibition of the trade.
How CFD Brokers are Tackling it
On the other hand, brokerage firms such as CMC Markets have understood well the need for anonymity in the CFD trade. They have designed trading platforms whereby traders are allowed to bypass the protocols that deal with identity verification when doing deposits and withdrawals on the trades.
Most firms are coming up with ways to offer trading platforms that are award winning, policies that do not have any commissions involved and even instant payouts to consumers. This is a sure way of attracting more investors to the trade.
Traders are assured of their security even with the anonymity. Brokers claim to have the ability to maintain fund security for clients from any online intruders or attacks. They have decent standards on safety that are put in place to sense anything wrong. This, in turn, offers enough protection to traders.
Other CFD brokers are renewing their customer insurance protection to assure traders. As is the standard in the industry, all FCA regulated brokers need to offer a minimum of £50,000 to comply with the FSCS (Financial Services Compensations Scheme) standards.
The renewal commitment is a sign of pledge demonstration by the broker firms. They want to convince their clients and offer them security. It is a complement to the brokers since they are providing leading trading experiences, which in turn adds more value to their customers.
It is a sure way to bring traders on board and to assure them that CFD trading is a successful venture. All in all, it is only to wait and hope for the best on the CFD market.