Professional qualifications & margins

[ChrisMahoola 0]

Hi, I've seen a warning pop up about the proposed new margin requirements.  One of the conditions is that you've received some professional training.  My question is, what would be the minimum required for this and how much would the course be especially for self training.  I could think of it as an interesting opportunity!

 

Thanks, Chris

[JamesIG 283]

Hi 

 

The retail to professional classification give the following benefits, and requires the following criteria. There is a note of working in the financial services (point three) but nothing relating to training specifically. Are you referring to the work in financial services part? If you could maybe post a screenshot or further info then I'd be able to help further. 

 

[london 0]

in reality no tangible benefits for customers

 

and IG gets let of the hook .. re acting in customers best interest

 

once again everything aimed at benefiting IG

[db 0]

Hi , as regards point number 1 in the screenshot posted above, with reference to having traded 10 times in each of the previous 4 quarters, what is the definition of 'significant size' in this case?

 

Thanks

[rimmy2000 87]

Professional qualifications in my eye would be CFA accreditation or even qualified accountant, perhaps.

[TrendFollower 568]

I respect the decision that IG have made on this but I personally have some issues with the criteria. 

 

• How does trading an average of 10 times per quarter in significant size define you as professional? What if you lost money on every single one of your 10 trades per quarter. Significant size can mean different things to different people! IG must clearly define what in their opinion is significant size rather than just use these two words.

 

• How does holding €500,000 investment portfolio define you as professional? This may define you as wealthy (though that could be argued) or even high net worth (again that could be argued) but it cannot define you as professional. What if you started off with a £1m investment portfolio which was now worth €620,000? Surely you would not define this individual as professional. What if someone won the lottery or inherited a lot of money and set up a €500,000 investment portfolio with IG. Surely this person would be rather lucky or fortunate than professional.

 

• I understand that working in a financial services role for a year requiring knowledge of CFD's, spread betting or trading forex could help define someone as professional. However this would rule out a lot of IG clients. It could be that IG has clients that do not meet this criteria but are far more experienced and most probably far more successful than people that do actually meet this criteria. IG may have clients that have been spread betting for say 10 years compared to someone who has 2 years experience working as above. 

 

I can see how it will deter a lot of people away as the smaller traders will not be able to afford the larger margin requirements.

[Caseynotes 1,281]

I would view the conditions set in light of events such as the SNB change in policy that caused the EURCHF crash in 2015. Not only did many retail traders lose but several small brokers when bust as well. Traders were using maximum leverage to make profit on a small points move knowing the SNB you act to restore price. A teacher on a £18,000 salary found himself over £200,000 in debt to IG who had to write it off. If memory serves IG lost over £30 million due to these write offs.

 

The spilt between professional and retail is an ESMA policy just as is the proposed increase in margin overall. So to trade with higher leverage than retail the broker is required now to ensure that you really do know what you are doing eg. by having worked in the industry or have the funds to cover extreme events that retail is prone to walk straight into.

 

It would be interesting to know if IG’s criteria mirrors that of other brokers or if they all have some degree freedom to set their own criteria.

 

 

 

https://www.esma.europa.eu/sites/default/files/library/esma35-43-620_report_on_guidelines_on_product_governance.pdf

 

see pages 34 and 35 for notes following the headings listed below.

 

18. Manufacturers should use the following list of five categories:

(a) The type of clients to whom the product is targeted: The firm should specify to which type of client the product is targeted. This specification should be made according to the MiFID II client categorisation of “retail client”, “professional client” and/or “eligible counterparty”.

(b) Knowledge and experience:

© Financial situation with a focus on the ability to bear losses:

(d) Risk tolerance and compatibility of the risk/reward profile of the product with the target market:

(e) Clients’ Objectives and Needs:

 

[JamesIG 283]

Hi  - these specifics are actually requested by the governing body themselves. You can see the exact phrasing on this via this link: FCA Handbook and then scrolling to the section which is titled "Elective professional clients". I have included a screenshot below for convenience. 

 

[TrendFollower 568]

Thanks . I appreciate your quick response.

 

So IG have basically taken this straight from the FCA handbook.

 

I personally don't agree with how professional clients are described.

 

However, I respect the FCA's definition and IG's stance.

 

To annoy me even more I got an e-mail today advising that now they are looking at banning CFD and Spread Betting on Cryptocurrencies for retail clients. Why not offer all IG Clients an online test that they must pass or material they must confirm they have read and understood on risk management to help make a decision. You may get people lie and self certify they are professional clients. What do IG have in place to counter this?

[JamesIG 283]

Absolutely  - this is a direct request from the regulators. You can see a number of our replies to these changes in regulation here http://www.iggroup.com/press/latest-news but you may need to click on '2017' and scroll a little to see the relevant posts as these proposals came out last year. 

 

We will try and make sure that clients fill in the requirements appropriately, however this will be internally monitored. 

[TrendFollower 568]

Thanks . As usual a speedy reply. Excellent customer service. 

[Tudor2 1]

blatant squeezer of clients ...

[MakJagger 1]

Sorry to bump this old thread, but does anyone have any idea when these regulations could be implemented?

 

For example the margin factor for DOW is 0.5% - will this increase be between 3.33 to 20% (and applicable on spread bets too?)

 

Surely this is a silly move from the FCA, as most punters will simply go to overseas providers with the low margin factors - hence IG will lose half their clients?

 

Personally although having over 10 years of trading experience and trade regularly with large £pp, I wouldn't qualify as a 'professional' (IT background) and certainly do not have £500,000 of cash in my pot to play with...

[Caseynotes 1,281]

I don't think a date has been set for the final decision from ESMA following the call for impact statements on their proposed changes to leverage limits and margins, the deadline for which was on the 5 Feb.

 

https://www.esma.europa.eu/press-news/esma-news/esma-consults-potential-cfd-and-binary-options-measures-protect-retail

 

 

[PandaFace 116]

I believe it could be anytime from this week forwards right? I read that somewhere...

[MakJagger 1]

Thanks for the replies....

 

Could someone from IG confirm if spread bets (on indices, forex) are also applicable or just CFD's and binaries?

[JamesIG 283]

---

wrote:

Thanks for the replies....

 

Could someone from IG confirm if spread bets (on indices, forex) are also applicable or just CFD's and binaries?

---

Hey  - so of course we don't know until we know, but yes - it's expected that this will apply to everything including spread bets because ESMA groups both leveraged trading options (CFD and Spread) under the same terminology. 

[Tudor2 1]

what a total joke - even though we are leaving the EU .. we are ment to bend over for ESMA margin shambles at whatever figure they can throw a dart at !

IG should be telling them its doesn't apply .....as we are not going to be in EU going forward .

[rimmy2000 87]

Hmm, well it does apply because at the time of implementation we (UK) are bound by the rules. And not everything that comes out of the EU is bad. We (again, UK) are also adopting GDPR 2018 regulation irrespective of Brexit. 

At the end of the day, this looks to be short term pain for medium term gain. It just means adding more weight to back your positions. I don't see that as inherently bad, unless one professionally trades and makes a living from leveraged bets on Major Indices, I don;t see it as a major overhaul. Could have been worse, imo.

[Kodiak 44]

Yes, it could have been worse (a total ban of CFDs?)

 

well to be honest this is a good thing when next black swan arrives and if using high leverage

 

"Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses; "

 

and this can also be good if someone get stuck in a losing position or move the stop in the wrong direction trying to avoid a loss (i think we all have been there sometime?)

 

"A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which providers are required to close out one or more retail client’s open CFDs;"

[Tudor2 1]

more weight is an understatement  the proposed margin hikes are absurd...retail customers best leave and just watch IG go under fast !

[Kodiak 44]

When things like this happens, and they do 

 

https://www.independent.co.uk/news/business/analysis-and-features/how-could-a-teacher-on-18000pa-lose-280000-spread-betting-10115157.html

 

then a negative balance protection is the only way to survive

 

 

[rimmy2000 87]

Nonsense. Which margin hikes are absurd? Moving shares margin from 7% to 20% is reasonable, not absurd. I added to my SB account tonight, partially in anticipation of this. Have no qualms with it.

Why would IG go under! Its not like IG are introducing this arbitrarily and customers will go to another provider. It will affect all providers. People either accept it or close their accounts. Most will have the means and sufficient time to scale positions accordingly to re-balance risk. After all that is all its about: rebalancing weightings.

[rimmy2000 87]

 

"

When things like this happens, and they do 

https://www.independent.co.uk/news/business/analysis-and-features/how-could-a-teacher-on-18000pa-los...

then a negative balance protection is the only way to survive"

 

Exactly, how has this example done anyone any good. Its a Lose Lose situation: The punter is deeply out of pocket, shamed and potentially in a life changing situation, the SB provider (here IG) have legal costs and the risk of never seeing that money returned. 

And it all suggests that the punter was massively overweight and did not understand the risk involved, or their notional liability in that open position. 

Trading currency has inherent risk through volatility, and losing £280k means you are taking a heavy position. If I trade indices I do it with miniscule amounts because I UNDERSTAND THE LEVERAGE I AM TAKING ON. This isn't rocket science, and jeez, if people don't understand these basics they stand no chance in the markets.

[Caseynotes 1,281]

Good points raised here and all are valid, to add my two pennith.

 

The raised margins will just mean having to hold more money with IG and not in an interest paying account, just as many will lose, only more slowly, and when you have an edge the potential for gains is now dramatically reduced.

 

The trade off of having limited loss seems unfair on those who understand the risk, in the last 6 years I only saw two black swan events in FX both of which were obviously high risk in advance, euro/swissie (a central bank was manipulating the market) and gbp on the brexit vote, both high risk/volatile plays. IG wrote off the debt of those who were unwise in their circumstances (couldn’t actually pay).

 

The EU authoritarian autocracy beggars belief, to call for replies to proposals, express acknowledgment of the overwhelming response to the negative by retail traders who obviously understood the issues and then to completely ignore them.

 

A cap on competing companies continually upping the ante by offering ever increasing leverage is understandable but this ESMA diktat is (and was meant to be) draconian, but why? Big financial houses in London are starting to express their concern not least because of the ridiculous increase in margin for shares, retail are a big market for this asset, especially in the UK.  

[PandaFace 116]

I do think there are some people who guenuinly do not understand the risks they are taking, and that is what these regulations are looking to control. They don’t understand, however, based entirely on their own back. There is SO much educational material, prompts, webpages, videos, guides and pdfs, webinars and seminars provided by IG, LET ALONE the millions of webpages and YouTube videos to educate. The issue is most people just don’t care and won’t be arsed to do that.

 

That independent article. Just a side note. He knew EXACTLY what he was doing. He knew his risks. He knew his reward. He decided to pick up pennies with his teeth in front of the steamroller... This regulation will protect people like him as well I guess.

 

But what about the people who trade a lot? Those who understand the markets and know the risks they’re taking out? Why the need for the mommy coddling? Surely those who want the leverage will just up sticks and sign in to MaxLeverageAvaliable.ch (my brand new made up Swiss hosted webpage which gives you 100000x leverage) rather than the ESMA regulates countries.

 

I don’t like the protectionist stance of this ruling.

[Kodiak 44]

I dont like these new regulations either but i try to be positive (half full glass)

 

its like trading, you need to adapt to changes in the markets

[MakJagger 1]

The hike from 0.5% to 5% meaning 10 times the amount of deposit factor on the indices (i.e for £10 a point on the DOW - you'll need a deposit of £12000) - currently you'll only need £1200...

 

I suppose it isn't too bad, I was concerned the hike would be 20 or 30% and if that was the case - I would have probably closed my IG account and packed in trading. The negative protection balance is also good news - I think this should have been the standard with all the providers regardless of the new changes.

 

Oh well, I guess I better grind on and try to make £500,000 so I can get to be a "professional IG" client

 

Happy easter & all the best!

[ChrisMahoola 0]

Is anyone else thinking this is a way of getting rid of the retail traders? Most people I know start off with a grand - assuming the worst - but this is would be useless!

[PandaFace 116]

Why would anyone want to do that ?

 

I think it’s with their best intentions... but I just think the regulation and execution of how to actually protect people is off. At the end of the day people will just move to completely unregulated companies.

[Crush1884 0]

I’ve traded for a reasonable period now with a high leverage against the deposits I hold. I have had moderate success. I understand the risk that comes with my trading and accept that irreversible losses (although unlikely) are possible. With this in mind I will no longer be able to trade in the manner I would like. Thus I am going to be forced to look for non EU spread betting companies that do not have to comply with these restrictions.

 

It appears IG will suffer as people who employ an arbitrage style trading like I do will no longer be able to work under these constraints. I understand why the restrictions have been brought into place but it seems it’s to protect the buffoons against themselves. Alongside this they will Restrict the thoughtful, strategic high frequency/arbitrage trader and drive business away from EU domiciled trading firms.

 

I would love to stay with IG and I’m sure they would love to keep my business as my style provides a heck of a lot of commissions for the company. However it seems unlikely once these restrictions come into play in July