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Germany's BaFin maintains restrictions on retail trading with financial CFDs

The following article was written by Jens Chrzanowski, Member of  the Management Board of Admiral Markets Group AS.


Jens Chrzanowski Admiral Markets

Jens Chrzanowski, Admiral Markets

Thursday, 10 August 2017, signifies the start of a new era for the German Forex & CFD market!

By the national BaFin regulation, any CFD offering without 100% protection is banned as of today, including marketing, distribution, and selling of CFDs to retail clients, as it may give rise to additional payment obligations.

The regulation was announced on 8 May, and active German brokers had enough time to implement the new rules.

The German market is crucial for many European brokers, and the new rules will help attract a much wider scale of potential clients. Many brokers still offer traditional trading warrants or leveraged certificates, via OTC or the official stock exchanges. A lot of potential clients have been too wary to trade CFDs because of incalculable risk. In the worst case scenario, the client’s risk of loss could not be limited to a particular margin payment, but instead could encompass the client’s entire assets.

This is now history for German CFD traders, and with that, traditional leveraged instruments are gone as well. The industry should expect the group of people interested in CFDs to grow five to ten times bigger!

Who Carries the Risk Now?

The risks are not gone completely, of course. If there are big weekend gaps or extremely volatile market events, open CFD positions can still bring the whole trading account to a negative result.

German retail clients don’t have to compensate for negative balances anymore, as the broker carries the risk now. The range of risk management tools should definitely be reviewed by all brokers who offer their services in Germany.

The stop out level – the level when open trades will automatically be closed by the broker systems – is just one buffer to be used. The maximum exposure to open trades per client could be limited, and in the case of important market events (e.g. elections), the maximum available leverage could also be restricted.

This all means additional work, which is very manageable. Clients normally understand and accept these limits, for the benefit of an absolute, 100% protection against negative balances.

Would You Like to Have a Piece of That Five-to-ten-times-bigger Cake?

Every country is different, and any broker operating in several countries is aware of that fact.  I would once again like to point out that in Germany, the majority of clients trade leveraged products via traditional warrants or certificates. This can now be changed due to the benefits of a 100% protection against negative balances.

If you openly market the above-mentioned advantages in the German market, you will be able to attract a new larger group of potential clients.

See you next week!

Feedback, concerns, requests, likes? Contact me via: [email protected].

Trading on margin carries a high level of risk, and this article should not be seen as advice or solicitation to buy or sell, but written for informational purposes.

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