The regulator is seeking support from government to extent its product intervention powers on contracts for difference (CFDs) until they are revoked or sunset in 2031.
Gillham said, while these products were marketed as being ‘commission-free’, clients had two major misunderstandings of how the system worked.
“What most retail clients fail to understand is that when they trade with a broker who is a market maker, they decide on the spread between the bid and ask price. Typically, this spread is much larger than a broker who mirrors the underlying asset. What this means is that the profits you could make amount to a lot less and your losses are much larger when trading with a market maker,” he said.
“Another fact that retail clients fail to understand about these products is that the money deposited into client trading accounts often becomes part of the broker’s revenue due to the client’s lack of knowledge and experience when trading these markets.