The Cyprus Securities and Exchange Commission (CySEC) is the financial regulatory body in Cyprus. CySEC is one of the most well known regulatory bodies in the forex market and they play a major role in what brokers can and cannot do.
Due to the numerous of complaints which regulatory bodies like CySEC has received over the past couple years, along with accusations that it has been too soft, it released a circular with new regulations for brokers over the 2016 Winter holiday.
One of the major regulatory changes that CySEC has made is getting rid of the bank of bonuses. One of the ways which many brokers have competed and marketed themselves especially to newer traders is through the use of bonuses.
However this posed a major issue because traders, especially newer ones would often register with a broker simply because of an attractive bonus, not the actual trading conditions. And on top of that, some brokers attached some very suspect conditions with their bonuses, which posed even more problems for traders.
This resulted in many traders being left dissatisfied and suffering major losses in many cases. Which prompted them to file complaints with watch dogs like CySEC. Another major issue is that while brokers used bonuses to attract clients, they did nothing to improve trading conditions for traders. This resulted in not only trading conditions being mediocre at best but in many cases, down right subpar.
This has resulted in the reputation of forex trading and CySEC going down the toilet. Because of this, CySEC has gotten tougher and started making more stringent rules on regulation. One of them being the removal of bonuses especially welcome bonuses.
While bonuses did give many traders an increase in trading capital, they were often left unable to withdraw their winnings because of the conditions and ridiculously high trading volumes. The removal of bonuses has undoubtedly forced many brokers to rethink their marketing strategies. Because for many, bonuses were a major selling point to new and current client.
However that was not the only major change proposed by CySEC. Another is that the default leverage for brokers be 1:50. This leverage isn’t the maximum that CySEC is going to allow their brokers to offer their traders.
However, under new regulation, if a broker wants to increase the leverage made available to a client, that client has to take an aptitude test in order to increase the leverage made available to them. This is because there were many newbie traders who were using high leverages without understanding that even though it increased their profits if they were to gain, it also multiplied their losses as well. And this is one of the reasons why so many traders have suffered such major losses. And why CySEC has implemented this new rule.
These changes will undoubtedly impact the operations of brokers across the globe. Some may very well ride it out and adjust quite nicely. However, others, such as brokers that rely heavily on bonuses to attract new clients will either have to adapt or die. Only time will tell what these new regulations will do for the forex trading market.