Watchdog cracks down on CfD as retail traders lose out

Stock photo: Reuters

Gretchen Friemann

March 28 2018 02:30 AM

Europe's markets watchdog has slapped tough new restrictions on complex financial products known as contracts for difference in an effort to limit losses faced by inexperienced traders. Contracts for Difference (CFD) attained notoriety in Ireland in the wake of Sean Quinn's use of the product to amass a 28pc stake in Anglo Irish Bank.

Yesterday the European Securities and Markets Authority (ESMA) unveiled stringent rules that limit the amount retail punters can borrow to leverage their bets, as part of long-standing push to address the market's complexity and lack of transparency.

Under current EU rules the measures will remain in place for three months although they can then be renewed for a further three months.

According to ESMA, studies by national regulators have shown 74pc to 89pc of retail accounts typically lose money on their investments.

The average losses per client range from €1,600 to €29,000.

The introduction of the curbs, which were set out in draft in December, comes despite opposition from IG Group, Europe's largest online trading platform.

Under the new rules leverage is capped at 30 times the amount an investor holds on a cash deposit, although the upper limits will depend on a product's volatility.