BaFin draws attention to the deficiencies in the knowledge of Forex traders

The Federal Financial Supervisory Authority from Germany, BaFin, has published a comprehensive document that reveals the lack of knowledge of retail investors, including lack of understanding of the rules of prices and quotes on paltforms.

BaFIN explains ...

The publication itself is primarily intended to increase the awareness of investors who often report unfounded complaints about the activities of brokers and the way they execute orders. In the published report, the German regulator explained, first of all, what are price slips and what are the reasons for their occurrence.

The document specifies which types of instruments we meet on investment platforms and how the price is created, how market makers work, and the stock exchanges themselves. Theoretically, this knowledge should be available to anyone who starts trading in a real account. In practice, it often turns out that it is completely different.

BaFIN mentions that investors often complain about the very fact that prices change on the market in a way that they would not like. This, unfortunately, cannot be claimed. The document itself may be perceived by novice market adepts as making fun of them. However, it points to a serious problem, which is the insufficient level of investors' preparation before starting the adventure with real trading.

This phenomenon does not apply only to the German market. In May 2017, the Polish Financial Supervision Authority published a similar educational document, which focused on explaining the principles of sliding (read: KNF report on price slippage on Forex platforms).

More complaints, more regulation

In the long term, novice traders who pay a deposit and lose it in the blink of an eye are not very desirable clients for brokers. Such people, due to the small amount of their knowledge about the mechanisms functioning on the market, often blame brokers for their failures. In the case of negative responses to complaints, they submit complaints to the regulator about the functioning of the entity which they used. More people who complain means in the long run more restrictions and limits for brokers.

Brokers are increasingly focusing on the high quality of educational materials. However, it is not necessary to say that the broker is often treated with limited trust by clients. Therefore, educational campaigns should go beyond (or perhaps above all?) From regulators as independent institutions.