Belgium Increase Ban to Leverage Financial Products

Posted September 19, 2019 by galileoh

Statistics from the financial industry suggest that the number of retail day traders is on the rise. Interestingly, the same statistics suggests that only a handful of these traders are profitable consistently.

Belgium's Financial Services and Markets Authority (FSMA) is the latest regulator to set tighter regulators framework on the country. Unlike, regulators in the USA and France, FSMA has adopted an extreme measure of banning all leveraged forex financial products. The ban even extends to cover products provided by international brokers, including brokers in the EU.

Banning leverage financial products is definitely a blow to the country's retail trading industry. Retail traders are usually relatively under-capitalised and hence depend on leverage to make meaningful profit. For instance, a retail trader with $1000 requires a leverage of 100% to trade a position worth $100,000. In case of a profit, the trader is likely to make a substantial amount of money. A 1% rise in the value of the underlying financial product will result in 100% rise of the trader's capital, same principle applies in case of a loss.

Unfortunately, cases of suffering financial losses are usually more pronounced, than cases of earning profit. That, however is not the reason why the Belgium financial regulators have opted to impose this ban. The regulator was forced to impose this ban due the numerous complaints against providers of leverage financial products brought forth by retail traders. Retail traders accused their brokers and other providers of aggressively and misguidedly advertising leverage financial products. Also, they complained that brokers were engaging in outright fraud, particularly by preventing them from withdrawing money from their trading account.

The move by Belgium financial regulators can be considered as extreme. A more appropriate move is one that curb the problem without necessarily killing the industry.

The ban on advertising, particularly targeting the Forex and Binary option products, adopted by the France's Financial Market Authority (AMF), is an example of a more appropriate move. Such a move will prevent aggressive marketing and instances of fraud, while allowing retail traders the opportunity to pursue their ambition of being consistent profitable traders. Belgium should have taken a leaf from the US Commodity Futures Trading Commission (CFTC) and limit the amount of leverage a broker can issue. This would minimise the chance of a trader taking on disastrous leverage losses.
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Last Updated September 19, 2019