Is CFD Trading Legit
CFD trading is a legitimate financial activity in many parts of the world, so long as it is conducted through regulated and licensed brokers. Different countries have varying laws and regulations on CFD trading as shown below:
US
In the US this financial asset is unregulated and considered as illegal.
UK
In the UK, CFD trading is regulated by the Financial Conduct Authority (FCA) under the Markets in Financial Instruments Directive II (MiFID II). The FCA has imposed strict leverage restrictions on CFD trading to protect retail traders from excessive losses.
The maximum leverage available to retail traders is 30:1 for major currency pairs, 20:1 for non-major currency pairs, gold and major indices, and 10:1 for commodities and other indices. However, professional traders can access higher leverage ratios.
In addition, the FCA has banned the use of bonuses as a marketing tool by CFD providers. This means that CFD providers cannot offer bonuses or incentives to traders to open accounts or place trades.
CFD Trading in the UK – Is it Taxable? Is it Safe?
EU
In the EU, CFD trading is regulated by the European Securities and Markets Authority (ESMA). ESMA has also imposed leverage restrictions on CFD trading in the EU to protect retail traders with similar leverage ratios as those in the UK.
ESMA has also banned the use of bonuses as a marketing tool by CFD providers, in the same way as the FCA. However, some EU countries have implemented their own stricter regulations on CFD trading, such as France and Belgium, where leverage is restricted to 1:20.
Rest of the World
In other parts of the world, regulations governing CFD trading may vary. It is critical to check with the local regulatory body to ensure that CFD trading is legal and regulated in that jurisdiction.