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In the run-up to the recent FCA cryptocurrency warning, shares in spread betting brokers IG Group and Plus500 dropped. Major retail brokers were taking hits in value throughout the days leading towards that warning.
Plus500 took the biggest hit, due to its offer of 1:20 leverage on cryptocurrency products. It seems some investors have been pricing in an increased value to companies that offer alternative methods of trading cryptocurrencies.
The leverage offered by retail brokers is a key differentiator when comparing them to exchanges in cryptocurrency. Exchanges offer a maximum of 1:3 leverage, and not all of them do at all.
CMC markets weren’t affected by the news, as the company has stayed away from cryptocurrency-related training products thus far. Recent months have seen the cryptocurrency market shine with real vibrancy. The FCA warning came as little surprise, informing people of the common risks associated with trading in the most temperamental and unpredictable asset that’s currently available.
CySEC announced last month that it is limiting its leverage on crypto products to a maximum of 1:5. The regulator also emphasised that it doesn’t allow the product to be passported across other EU jurisdictions. The recent FCA warning simply highlights that the regulatory body is exploring the option of imposing unique limitations on the retail trading of cryptocurrencies.
A large proportion of the crypto-trading business brokers deal with will remain outside of EU and UK jurisdiction. The long-term implications of EU regulators taking such a proactive approach are likely to impact trading activity in cryptocurrencies in the short term.
On this note, the FCA’s warning does mention that trading using markets beyond the boundaries of the EU will remain unaffected. The popularity of cryptocurrencies continues to grow, so most brokers won’t feel the effect of the EU’s preemptive measures too harshly.
One of the most controversial issues that the FCA refers to is that interest rates on crypto CFD contracts have been substantially higher in comparison to other instruments; exceeding 110% with some brokers.
After starting at a rate more than 5% lower when the trading session began after the warning, shares of Plus500 have, for the most part, recovered the losses. CMC and IG Markets are now both trading with figures in the green. There are expected to be further announcements from ESMA in the near future.
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