Friday, December 22, 2017

Regulators change the rules for Retail Forex brokers may force brokers to establish Far East branches

Regulators change the rules for Retail Forex brokers of Cyprus regulator, CySEC’s plan to ban bonus payments by brokers to retail clients, and to limit leverage, a full week before it was formally announced. CySEC’s move was followed by a similar proposal by UK regulator FCA. Germany’s BaFin followed with a more mild demand that Forex and CFD brokers provide negative balance protection to traders.

These changes followed more drastic bans on Forex advertising in France and Holland, and a total ban of leveraged CFD trading in Belgium which we reported is actually backfiring. Beginning in 2016 both Israel and Russia required Forex brokers to obtain a license to offer services to retail traders, and regulators in both countries have been fairly stingy in handing them out – just 6 brokers have received the regulator’s stamp of approval so far in each.

What does this all mean?

There is a wave of consolidation is coming in Retail Forex, as it is becoming more difficult and more expensive to operate a Retail Forex and CFD brokerage, certainly in Europe. Small aggressive brokers which have competed and nibbled away market share based on promises of large deposit bonuses and outsized leveraged have lost their competitive advantage. Big firms will start to swallow up smaller firms.

We also expect Forex brokers to make an even harder push into emerging markets in the Far East, where it is still possible to operate with relatively little regulatory scrutiny.


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