FX and binary companies will adapt and evolve to regulatory changes
Published 26th January 2017
The forex and binary industry is tightening up for 2017, new advertising laws and bonus bans are spreading across Europe’s biggest financial regulatory bodies such as the Financial Conduct Authority (FCA) and the Cyprus financial regulator CySEC. This leaves the industry wondering, are we facing an end of an era? Are forex and binary brokerages on the verge of elimination? Or will they only need a few minor adjustments to get right back on track?
Both CySEC and the FCA have taken major steps recently to increase protection of retail trading consumers and prevent them from getting involved in high-risk financial trading positions. CySEC is close to issuing a leverage cap of 50:1, while the FCA released a proposal to cap leverage for forex and CFDs to 50:1 for traders with at least 12 months experience, and a leverage cap of 25:1 for those with less than 12 months trading experience.
At the same time both regulators are looking to suspend all bonus practices, regardless of whether they are related to trading or account opening and even suggested that brokers will be forced to disclose publicly the real profit-loss ratios of their clients. These developments lead those involved in the sector to question where the financial industry is heading and how forex and binary brokers will adjust to avoid major drops in their client recruitment drives. Can the market handle these changes?
To best answer this I will use my family as a metaphor for the forex and binary industries.
I have a 10-year-old son who, for as long as I can remember, didn’t like eating his dinner. Being the great ‘broker/dad’ that I am, I sold my son dinner using chocolate ice cream as a desert bonus and it worked for years. Eli knew that every time he finished his plate he would get chocolate ice-cream. My system was working beautifully as he ate his dinner every single night.
One day about a year ago, my wife (the regulator) came to me and said: “This ice cream that you are giving him every night is ruining his teeth and is doing bad things to his body, I am declaring a ban on ice cream in this house!” I froze completely… how will I be able to get my little trader to eat his dinner? How will his assets grow now? And then it came to me… he likes toy cars as well! And life was good again (well at least until he stops loving toy cars) but when that time comes we will figure out what to do.
Adapt and evolve
The point I am trying to make is that even though regulations change, we learn to adapt to those changes and find new ways to draw traders and potential investors to our platforms. Some changes may result in different prize incentives that are offered for new account openings like electronic devices, vacations, concert tickets etc. Other changes may result in putting a larger emphasis on educational programs that will strengthen the trader’s decision making ability and help them feel empowered and secure with their trades.
Another prediction is that brokers will use automated marketing tools that will display unique landing pages to each and every individual based on their history of online actions. I believe this will produce fantastic results and great efficiency in the call to action funnels on every unique landing page. Think about it, for sport lovers the advertisement will show a football club as background, for computer geeks the ad will show the latest and most advanced computer servers in the world and for the housewife the ad will show a raffle for a brand new SUV or a new fridge… you get my point.
In the end, the financial market will not stop changing and fixing itself. The regulator will always write new laws for the greater good, and will do whatever it takes to protect the consumer and the balance of the market. On the other hand, brokers, introducing brokers, affiliates and all other stakeholders will not stop evolving and creating new funnels to draw consumers.