The UK Financial Conduct Authority (FCA) has published its annual review of different financial markets for which it is responsible in a regulatory capacity to examine the risks faced by consumers in different sectors. This review is particularly important this year as it studies the impact of European ESMA interventions, which began applying to the UK as well in the summer of 2018, on traders’ risks and possible incurred losses when trading Contracts for Difference (CFDs).

The regulator’s review has found that prior to the period of ESMA intervention measures being enforced in 2018, there were 800,000 active traders using CFDs for investing for an estimated £1.5 billion in deposits. By the regulators estimation, traders were losing £1.07 billion every year by trading CFDs. Following the introduction of ESMA restrictions, the estimated losses fell by £77 million in the three months following. Yet the regulator does not provide further details on how traders’ performance was impacted following this time. The review did, however, estimate that future annual savings could amount to between £267 million and £451 million, yet it is not clear if the below rationale is taken into account with such projections.

It has become quite evident that some traders faced with ESMA intervention restrictions chose to migrate their accounts to offshore brokerages, while others opted to retain their available leverage for trading CFDs by opting into a “professional” category of traders in which they must provide additional KYC information to qualify. It can be argued that some number of UK residents simply left the regulated space and opted to invest in questionable investments and strategies by virtually unknown and unregistered companies.

Indeed the UK has grappled with massive investment fraud and scams, as reported by many outlets, including ours, which have been praying on UK residents looking for new opportunities to invest at a time when trading costs are significantly increasing (read: lower leverage = increased costs to trade). Having some insight into such statistics will provide a stronger case for or against ESMA interventions having a positive impact for risks and losses. Furthermore, it must be noted that market conditions for CFDs have a direct correlation with underlying markets and when speaking specifically about Forex CFDs, it is evident that subdued market conditions played a role in reducing trading activity in 2018-2019 and continue to do so today , as brokers have began to report disappointing revenue results.