The German regulator limits Forex and CFD trading

The Forex and CFD markets (contracts for exchange differences) have gained further restrictions in Europe. BaFIN, the German equivalent of the Polish Financial Supervision Authority, announced the introduction of amendments to the Act on Trading in Financial Instruments. The introduced modifications strike primarily in Forex brokers and CFD instruments.

Reasons and consultations

At the end of last year, the German regulator expressed a desire to limit or even completely ban trade on these instruments. The argument was primarily the risk of a negative balance on clients' accounts, the use of large leveraging, as well as overly aggressive marketing activities. The consultative period lasting until 30 January 2017 was meant to revive the discussion on these threats and to find a consensus along with the interested parties. 3 months later decisions were made.

Applications and decisions

Released official BaFIN document informs directly that the trade and marketing of CFD instruments is very limited in Germany. Instruments in which trading may result in an account overdraft ("additional payment obligation") may not be further offered to retail clients. Brokers have two options - introduce negative balance protection or withdraw from the market. The deadline for making a decision is August 10, 2017.

The positive side of changes is the fact that the level of leverage has not been limited in any way, both for retail and professional customers.

Steps taken by brokers

Some brokers, expecting such steps from the regulator, introduced protection against debit in their offer some time ago. At this moment it is difficult to answer the question of how many brokers operating on the German market will decide on similar steps. The dilemma will be primarily brokers operating in the ECN and STP models, who avoid conflicts of interest.

CMC Markets, a British broker, which operates quite intensively on the German market, was one of the first to issue an official statement regarding the BaFIN decision (read the message). At the end of last year, the company announced the introduction of safeguards against the creation of a debit on the proprietary platform Next Generation. This means that it is fully prepared for the changes and is free to continue operations on the German market.

We are waiting for the step of the other leaders.