Losses can exceed your deposits. Issued by IG markets limited
The Central Bank of Ireland has just released its future plans for CFDs and Forex. Aside from making monetary policy, the Central Bank of Ireland is also the chief regulator for the country. The consultation paper which was released cited statistics that says 75% are of retail CFD traders Will lose money. The average loss for the retail trader is 6900 Euros.
Central Bank of Ireland Cites Short Account Lifecycle
There are currently 19 firms within Ireland that are authorized to offer the CFD trading. Within EU regulated countries there are over 500 firms that have access to the market in Ireland through EU passport. What is of great concern to the Central Bank of Ireland is the high turnover rates and short lifecycles of CFD retail accounts.
Central Bank of Ireland Concerns Over High Leverage
The Central Bank of Ireland also pointed out it has deep concerns over the high leverage amounts given to retail traders. Noting that often retail brokers are offering leverage up to 400:1. The Central Bank of Ireland believes that the retail clients cannot appreciate or understand the risks of using such high leverage.
Concern Over Unlimited Loss
With high leverage, the Central Bank is concerned of the potential for unlimited losses. A catastrophic event like the SNB one in 2015 would leave many accounts with negative balances.
Concern Over Aggressive Marketing
Aggressive Marketing practices, especially with the use of bonuses, are also of concern to the Central Bank. The incentive to trade to usually results in the customer over trading their account. The focus appears to have focused on the transaction and not looking out for the best interest of the customer.
There is the possibility of a complete ban of CFDs and Forex. There is also the possibility of a reduction in leverage and elimination of bonuses. Brokers will be anxiously awaiting to see if Ireland goes the way of France or Belgium or will go the way of Germany.
Trading Forex and Derivatives carries a high level of risk, including the risk of losing substantially more than your initial investment. Also, you do not own or have any rights to the underlying assets. The effect of leverage is that both gains and losses are magnified. You should only trade if you can afford to carry these risks. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved.