FCA Regulation of the CFD Market and Brokers

| April 17, 2017

cfd marketThe CFD market throughout the world is very competitive especially after the recent explosion in greater interest of CFDs for individual investors. Private individuals tend to follow the lead of institutional investors especially in the case of CFDs.

The enhanced disclosure provisions for large funds help in raising the profile of CFDs as an instrument traded across the city. CFDs have become very common among traders as there are expectations of quick returns and greater chances of success in the markets.

FCA plays a significant role in regulating this market which cannot be underestimated at any cost. When people look for a reliable and trustworthy broker, the seal of FCA becomes very crucial.

In finance, a contract for difference (CFD) is a contract between two parties, typically described, stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time (if the difference is negative, then the buyer pays instead to the seller).

In effect CFDs are financial derivatives that allow traders to take advantage of prices moving up (long positions) or prices moving down (short positions) on underlying financial instruments and are often used to speculate on those markets.

For example, when applied to equities, such a contract is an equity derivative that allows traders to speculate on share price movements, without the need for ownership of the underlying shares.

About FCA

FCA is basically a body which is responsible for regulating respective trading and financial services industries. This body is greatly involved with the insurance companies, banks, and financial advisers.

In addition to this, FCA plays a significant role in the smooth operation of markets and interacts with CFD brokers as well. On a greater scale such as macro-level, the FCA breeds great confidence internationally that UK markets are good to do business.

This confidence is essential for both individual traders and the UK economy as a whole.FCA also screen out the bad elements in the financial services that look for profit at the expense of others.

They keep in check for people who leverage an unfair advantage through market manipulation to meet their own ends. This leads to fair and transparent markets.FCA is also in charge of running tight ships to ensure regulations are satisfied.

The regulations are thus satisfied in the operation of wider markets and individual practices of CFD brokers.

Functions performed by the FCA

cfd marketTraders value greatly FCA’s function of regulating both the markets and brokers with who the trade takes place. Thus, it is very important to check whether your broker is authorized and regulated by the FCA.

Brokers offering CFDs require FCA regulation by law. This regulation is also an important benchmark of legitimacy for business practices especially.

If there is no oversight by the FCA, CFD brokers, funds, investors and other brokers will easily distort the markets deliberately for their own interests. These brokers leverage their enhanced buying power to rip off ordinary traders.

Without any FCA regulation, there is no way to ensure greater transparency. People cannot be sure about the platform they use to trade CFD gives accurate and updated information reflecting genuine market pricing.

Therefore, without the FCA’s safeguard in place, people can never be sure about whether they are trading on equal standing, fair basis as everyone else does.

In today’s modern day industry which is very lucrative and directly concerned with money, having strong regulatory principles are very essential. This oversight prevents people from any deliberate malpractice.

Moreover, FCA regulation also ensures the FCA UK CFD brokers are doing business with clients in the fairest, robust and genuine way possible. Thus, ordinary traders are able to have greater peace of mind as they know they have same chances of making fortune as other direct traders have.


Category: Investing

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