More people are investing in contracts for difference (CFDs); that’s the assumption following new data from XTB.
The Polish foreign exchange broker recently published its Q3 financial report showing a significant change of fortunes. More than a year after the European Securities and Markets Authority (ESMA) issued restrictions on CFD trading, XTB has bounced back with a $4 million quarterly profit. That’s a marked difference from the $753,000 loss reported in Q3 2018.
Looking through the figures, the uptick in earnings is thanks to increased activity on the platform. As per the report, 10,042 new customers joined during the third quarter of 2019. This steady rise in interest is due, in part, to new trading guidelines. In a bid to limit the risks to retail customers, ESMA has imposed a number of restrictions on brokers, including:
- Reduced leverage limits
- A margin closeout rule on a per-account basis (50% of the minimum required margin)
- A limit on retail losses through negative balance protection
- Restrictions on the incentives offered to trade CFDs
- Standardized risk warnings, including information on the percentage of losses a provider has seen on CFD retail investor accounts
In tandem with new trading conditions, forex trading practice accounts for novices, also called “demo” accounts, have made CFDs more accessible. By providing a risk-free way to learn the nuances of trading these instruments, operators have found a way to encourage more retail consumers to join the market. Even though guides can explain that CFDs involve a contract between two parties to exchange the difference in price at entry/exit points, there’s no match for first-hand experience.
By using demo accounts, fledging financial traders get to see how CFD assets move in line with market conditions without any underlying asset being purchased. They also get a chance to compare these dynamics to more traditional types of investing, such as trading stocks. The end result is more informed consumers that are not only more equipped to manage their risk but trade for real money. That, in turn, is generating more activity across the top exchanges such as XTB.