For quite some time already, my April fool jokes about the foreign exchange market closing down or the government monopolizing it no longer seem so outlandish as they definitely looked like back in 2009 and 2011.
With the current regulatory situation being very close to an outright ban of retail FX trading, will it take long for the coordinated effort by developed countries to outlaw speculative Forex trading completely? The legality of trading is called into question in many jurisdictions. If we look at the recent developments in the industry, you will notice the following signs:
- In December 2017, the ESMA published a statement proposing to limit the CFD (including Forex) trading severely in Europe. In January 2018, the agency asked the industry participants for input regarding its regulatory proposal.
- Israel has banned binary options for its citizens and also made it illegal to operate binary options companies from within the country. Binary trading is closely connected to Forex/CFD trading, which of course is not associated with gambling as strongly as binaries, but it will not be a huge step for the regulators to extend the ban to also involve the FX.
- Almost simultaneously in 2016, Belgium decided to ban all OTC Forex and CFD trading while France chose to limit the maximum leverage on spot trading to 1:5. Obviously, France’s legislation is rather close to a complete ban of FX trading.
- A bit older but still relevant development is the crackdown on leverage and stricter broker rules in the USA and Japan. Although these changes have strengthened the consumer protection they have also reduced the competition.
The main argument in favor of the ban is that most retail traders lose anyway, making Forex trading akin to gambling. The situation is worsened by proliferation of scams in the industry. Prohibiting the Forex market participation for the individual traders would likely help the state to get rid of quite a few problems.
However, there are some factors making banning Forex trading quite impractical:
- Smooth operation of the FX market in its current form is important, and the retail industry is playing a role in its infrastructure.
- Global (or nearly global) ban would require a coordinated effort from too many governments, which is not plausible at this point. And if the effort is coordinated poorly, there will be loopholes for the individual traders to exploit.
- Corporate interests and the
industry-createdemployment will suffer in case such a ban is implemented.
Moreover, even if a group of developed countries (let’s say all the OECD members) manage to outlaw Forex trading successfully, the action might draw a lot of public criticism as the ban would be most certainly considered as an attack on economic freedom.
I consider a complete ban on retail FX ban a highly improbable event in the next few years. I believe that a lot more regulation will be applied to the field, but that you and I will still be able to buy and sell a few lots to earn our share of profit. And what is your opinion on the matter?
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