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Germany requires forex brokers to introduce negative balance protection, IG Group & CMC Markets react

May 09 2017
By
Jonathan Smith

The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, a.k.a. BaFin) announced on Monday it introduces certain restrictions to CFD trading in order to safeguard the interests of retail clients. Namely, forex brokers won’t be able to offer trading in CFDs, unless they provide their clients with negative balance protection.

 

Brokers that wish to continue to operate in Germany have three months to comply with the requirement (until August 8, 2017). The regulator is intervening in the financial markets for the first time. “By restricting trading in CFDs we are making use for the first time of the product intervention option”, said BaFin Executive Director Elisabeth Roegele. - “The restriction of CFD trading is therefore a necessary step to protect retail investors”, she added.

 

As most of you probably know, CFD trading involves significant risks of losses exceeding the initial investments, due to the high leverage levels provided by forex brokers. That is why recently both UK’s FCA and Cyprus’ CySEC introduced measures aimed at restricting leverage ratios. BaFin, on the other hand, undertook different approach – obliging brokers to introduce negative balance protection, thus ensuring traders cannot lose more money than they have deposited.

 

Initially, the German regulator intended to ban margin trading in CFDs for retail investors altogether, but has obviously changed its mind.

 

Following BaFin's announcement, one of the major UK forex and CFD brokers, IG Group (LON:IGG), which is also active in Germany, released a statement saying that it has already introduced some measures in that regard. The broker offers Limited Risk Account which is not only compliant with these new rules, but provides additional ‘by position’ protection to German clients.

 

Another major forex and CFD broker, CMC Markets, also received well BaFin's restriction on CFD trading.  As the broker already offers negative balance protection through its Next Generation platform, it complies with the BaFin’s requirements. 

 

TAGS: BaFin  Germany  regulation  negative balance protection  IG 

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