Will Derivatives Trading be Affected by New Financial Regulations?

11 January 2010 - Xenia Rainey (Which Way To Pay)



Will Derivatives Trading be Affected by New Financial Regulations?



As the world’s governments and finance ministers argue out new regulations and guidelines to their country’s – and the world’s – financial systems, many are wondering what will be in store for certain areas of the investment trade world.


After the 2008 banking crash, the world tumbled into a general recession for 2009.  Many developed nations suffered under poor growth and poor economic health. 


Now, with most nations emerging there are questions being asked as to the reasons for the downturn.




Top of the list for many are investment banks – their risk-taking nature and massive profits (with the bonuses to boot) were, for some, the key reason for the unmanageable economic downfall.


Other areas have been scrutinised, including the world of trading.  High levels of speculation as well as certain tactics were criticised as being far too risky. 


Indeed, non-central exchange trading, or OTC (over-the-counter) derivatives trading, is also coming under new possible regulations.  What does this mean for trading like spread betting or CFDs?  According to latest reports, areas like leverage will be subject to stricter limits.


But keeping up to speed with what will actually change is tough – as the new plans are still being thrashed out by US and UK governments.


Here are some things which are being discussed:


-          OTCs may be forced to trade on an exchange

-          Larger companies may be subject to capital charges on their trades

-          Derivatives trading between large corporations may be discouraged


What does this Mean for Me?


As far as regular online investment traders are concerned, there is no need to worry just yet.  The changes being discussed for financial sectors are related more to the risk-taking nature from within large banking and other corporations, who employed derivatives trading to boost their profits. 


For retail traders (i.e. normal individual traders), there are no major plans as yet to change the structure of trade types such as CFDs, spread betting or commodities trading. 


For anyone who has concerns it is advised to approach your broker or platform company.  However, on the whole it seems as though business continues as usual with markets providing the exciting and often challenging arena for trade.


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