The US stock index futures exchanges (CME) stopped all CFD trading in the USA.
What is a CFD?
As you know, the CFD market is extremely popular in both the UK and USA. However, CFD trading has been banned in the USA since 2012.
To get around this ban, many brokers started offering a new type of contract that allowed traders to speculate on currencies – the Contingent Forward FX (or CFP).
The CFP has a lot of similarities with the futures markets. One contract represents $10,000 worth of currency, and they trade both on an exchange and OTC.
What is the problem?
The problem is that these contracts are not as transparent as the more common CFDs. There were rumours that some brokers were manipulating prices to their advantage by either setting lower limits for price movements or by rigging quotes.
Nevertheless, CME’s decision to stop all trading in the US is probably more related to regulatory changes than anything else: after New York banned binary options and other “click-for-pay” investment schemes last month, CFD providers could be next in line.
Are you worried? Is this bad news for you?
Not really, because brokers are still allowed to offer CFDs – it’s just that you can’t trade them on an exchange. You will simply have to make do with the over-the-counter market.
This means that it’ll be more important than ever to choose a reputable broker who is registered with CySEC or FCA. The USA banned CFP trading. The US stock index futures exchanges (CME) will stop all CFP trading as of 12th April.
A CFP is a type of contract that allows traders to speculate on currencies – the Contingent Forward FX (or CFP). These contracts are not as transparent as the more common CFDs. After New York banned binary options and other “click-for-pay” investment schemes last month, CFD providers could be next in line.
At Saxo the best brokers are available. This way your money is safe by using brokers on our list of approved companies! Why would they ban CFPs?
The CFD market is already facing increased regulation with the upcoming MiFID 2. And the last thing any broker wants is to be associated with “micro” or “click” trading (which is often used interchangeably to describe binary options).
Why is this good news for Forex brokers?
The best CFD brokers already offer similarly priced CFPs that trade on an OTC basis. It means that you can still use these contracts (they will become more popular) without worrying about price rigging.
What does this mean for traders in the USA?
As mentioned earlier, it’s not bad news because you can still trade with reputable brokers. What does this mean for Forex traders?
It’s not bad news either. There are plenty of brokers who offer contracts equivalent to Contingent Forward FX, so it won’t have an impact on the market. The best CFD brokers also allow you to trade CFPs – it’s just that these contracts will become more popular since they are now widely available in the USA.
This is good news because you can still use them without worrying about price rigging.