FCA Regulation of the CFD Market and Brokers

The CFD market is hotly competitive, particularly given the recent explosion in interest in CFDs amongst individual investors. Where the institutional investors lead, private individuals follow, and this has been typified in the case of CFDs where enhanced disclosure provisions at larger funds helped raise the profile of CFDs as an instrument that is widely traded across the city. Highly leveraged by nature, CFDs have lured in traders with expectations of quick returns, and dreams of achieving wild success on the markets. Be that as it may, the role of the FCA in regulating this market is one that shouldn't be underestimated, and when it comes to choosing a suitable broker, the FCA seal of approval is absolutely critical to vetting legitimate providers.

What is the FCA?

The FCA is the body set up to regulate the respective trading and financial services industries. In addition to their involvement with banks, insurance companies and financial advisers, the FCA remit also extends to CFD brokers, and the role they play in ensuring fair play is vital to the smooth operation of the markets.

On a macro-level, the FCA helps to breed confidence in the UK markets as a good place to do business internationally, which is essential both for individual traders and the UK economy as a whole. They are designed to weed out the bad elements in financial services who look to profit at the expense of others, and leverage an unfair advantage through market manipulation to their own ends, with an overall emphasis on fair and transparent markets.

In doing so, they are charged with running a tight ship to ensure that regulations are satisfied, both as far as the operation of the wider markets and the individual business practices of CFD brokers are concerned.

What Function does the FCA Perform?

For traders, the FCA's function in regulating both the markets and the brokers with whom trades are executed is nothing short of essential. That's why it is vital that any CFD broker you use is regulated and authorised by the FCA. Not only is FCA regulation required by law for brokers offering CFDs, but it is also an important benchmark of legitimacy as far as business practices are concerned.

Without FCA oversight, it would be too easy for CFD brokers, and indeed other brokers, funds and investors to distort the markets deliberately, and to leverage their enhanced buying power to rip off ordinary traders. Indeed, without FCA regulation, there's no way you can even be sure that the platform you're using to trade CFDs is giving an accurate, up to the minute reflection of genuine market pricing. Without that safeguard in place, how can you ever be sure that you are trading on a fair, equal standing with everyone else?

In an industry so lucrative and so directly concerned with money, it is essential to have strong regulatory oversight to prevent deliberate malpractice. As far as CFD brokers are concerned, FCA regulation ensures that they are doing business in a robust, fair and genuine way with their clients, which in turn affords ordinary traders peace of mind knowing that they are trading, with as much of a chance as anyone else of making their fortune through CFDs.