The European Securities and Markets Authority has introduced a series of measures to restrict the marketing of contracts for difference and ban binary options to retail investors.
The limitations, also backed by the FCA, mean that there is a greater protection for investors including restricting the use of leverage and incentives, and more risk warnings on products such as binary options.
ESMA published a consultation in December where it outlined its concerns on the risky instruments.
The FCA, which has voiced similar concerns in the past, said this morning that it supported ESMA’s application of the ban and will consult on applying the measures permanently to firms offering CFDs to retail clients in the UK.
A cross-departmental study on CFD trading across different EU countries shows that between 74 and 89 per cent of retail accounts would lose an average of €1,600 (£1,822) to €29,000 per client.
ESMA chair Steven Maijoor says:“The agreed measures ESMA is announcing today will guarantee greater investor protection across the EU by ensuring a common minimum level of protection for retail investors.
“The combination of the promise of high returns, easy-to-trade digital platforms, in an environment of historical low interest rates, has created an offer that appeals to retail investors. However, the inherent complexity of the products and their excessive leverage – in the case of CFDs – has resulted in significant losses for retail investors.”