10

JUL
2018

Time for a change in how you trade leverage?

The spread-betting market has offered retail investors the ability to gain enormous levels of leverage in their investments, some as large as 200, 300 or 500 times. Coupled with the ability to lose more than you invest via margin calls, regulators have finally stepped in to protect retail investors.

This month saw the European Securities and Markets Authority (ESMA) use their product intervention powers to enforce a number of restrictions on spread-betting, impacting investors across Europe including the UK.

These restrictions consisted of number of new rules concerning: leverage limits on opening positions; a margin close out rule on a per account basis; a negative balance protection on a per account basis; preventing the use of incentives by a spread-betting provider; and a firm specific risk warning delivered in a standardised way.

By comparison to spread-betting, Leveraged Exchange Traded Products (ETPs) such as those traded on the London Stock Exchange have represented the conservative end of the leveraged scene and are specifically designed for sophisticated retail investors. 

Rather than offering such high levels of leverage, where investors can lose more than they invest, ETPs offer far more modest levels of leveraged exposure to mainstream markets that track their daily performance, either long or short, and importantly you cannot lose more than you invest.

Perhaps it is hardly surprising therefore to know that in 2017, over £2.8bn of such leveraged products were traded on the London Stock Exchange, and maybe the findings by ESMA and those of local regulators such as the FCA may well encourage sophisticated retail investors to look more deeply into the risks involved with spread-betting, and turn their attention to the little cited but highly relevant world of Leveraged ETP’s.

 

Remember, as with most investments, the value can go down as well as up, and as a leveraged investment these products are designed for sophisticated investors, so if in doubt, seek advice.

Post by: Zak de Mariveles, Head of UK Exchange Traded Products


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spreadbetting ESMA FCA

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Risk Warning: Short & Long Leveraged ETPs are suitable for sophisticated retail investors. Both gains and losses will be accelerated in comparison to a direct investment in the underlying asset.
 
Any statement in relation to tax, where made, is generic and non-exhaustive and is based on our understanding of the laws and practice in force as of the date of this document and is subject to any changes in law and practice and the interpretation and application thereof, which changes could be made with retroactive effect. Any such statement must not be construed as tax advice and must not be relied upon. The tax treatment of investments will, amongst other things, depend on an individual's circumstances. Investors must consult with an appropriate professional tax adviser to ascertain for themselves the taxation consequences of acquiring, holding and / or disposing of any investments mentioned in this news.