Germany requires forex brokers to introduce negative balance protection

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mlawson71

The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, a.k.a. BaFin) announced it is introducing 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.
 
So the forex brokers have to basically provide the equivalent of a long put or call contract for each of their clients and pass on that insurance cost via shittier spreads? Sounds like a wonderfully not well thought out regulation.
 
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i960 said:
So the forex brokers have to basically provide the equivalent of a long put or call contract for each of their clients and pass on that insurance cost via shittier spreads? Sounds like a wonderfully not well thought out regulation.
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Right. Just encourages traders with a gambler mentality to go for the "Hail Mary" play ahead of major announcements
 
Darwinex, which is regulated by the FCA, issued a comment criticizing the decision of Germany’s market and financial services regulator BaFin to introduce a mandatory negative balance protection on contracts for difference (CFDs) for retail clients.

According to Darwinex, CFDs are “good” and “BaFin stigmatizes a good instrument – one that solves a real issue faced by genuine investors”.

According to Darwinex, however, the introduction of negative balance protection by BaFin might “spook” retail investors, despite the good intentions.
 
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