City meltdown as bets are off

BRITAIN’S spread-betting industry was in meltdown yesterday after the City regulator proposed stricter rules to protect inexperienced investors against losses on complex trades.

More than £1billion was wiped from the value of listed trading companies as the crackdown by the Financial Conduct Authority shocked the City.

Shares in FTSE 250 companies IG Group and CMC Markets crashed by 302p to 485p and 69½p to 115p respectively, while Plus 500 plunged 144½p to 366½p.

The FCA said it was concerned about customers opening online accounts with spread-betting providers without understanding the products they were trading.

It found that more than 80 per cent of clients lost money on so-called “contracts for difference” over a year, at an average loss of £2,200.

CFDs, which were historically marketed to more financially sophisticated investors, allow retail investors to gain indirect exposure to price movements in an underlying index, a single-stock equity, commodities or currencies without owning them.

Customers can increase the size of their trades by putting down a small amount of capital to maximise potential gains and losses. The FCA wants betting platforms to provide standard risk warnings and has proposed setting a leverage limit of 25 times for retail investors with less than 12 months of active experience.

Leverage for all retail clients would be capped at 50 times.

Christopher Woolard, pictured, the FCA’s executive director of strategy and competition, said: “We have serious concerns that an increasing number of retail clients are trading in CFD products without an adequate understanding of the risks involved and as a result can incur rapid, large and unexpected losses.

“We are introducing stricter rules for CFD products to ensure the sector addresses the shortcomings identified and that firms make sure that retail clients are aware of the high risks involved in trading these complex products.”

IG group said it “firmly believes in robust and proportionate regulatory oversight of the CFD sector” and recognises that there are “shortcomings” in the approach to their marketing.

It added that its “initial view is that certain of the FCA proposals could enhance client outcomes”.