Marcus Richards
If you have heard about CFD trading online, the rumors might have been controversial. Some say it’s a way to become a millionaire; others insist it’s all fraud, and in some countries that do care about things like this sort of trade is banned. Where’s the truth? Indeed, some countries restricted or outlawed online CFD trading, reasons for this being different.
The saddest thing is that the restrictions apply to citizens of these countries, not businesses. That means one should not use even overseas trading services. Still, the industry is very attractive, especially given the lockdown time. So let’s speak about why and how it’s banned, and what can be done about it.
The Reasons to Ban CFD Trading
There are two theories why CFD trading got banned in the USA. Some say that the ban was caused by prevailingly unfair traders that operated at the moment. The rate of users losing all their money too soon was too high to let this go. The SEC just cut the entire opportunity to avoid thousands of actions that would inevitably follow. Given that traders are mostly residents of some offshore regions, the perspectives look even murkier through the eye of the SEC.
Another theory suggests that the ban was lobbied by official stock exchanges that wanted to keep all the trading under their control. The theories, in fact, don’t contradict each other: you know that not all CFD trading platforms are created equal, and the cash flow through them is really enormous. So both versions are quite plausible.
As for bans in other countries, they include Brazil and Hong Kong (though its inhabitants can trade overseas, taking full responsibility for themselves). In some other countries (China, Thailand, Malaysia, Albania, some Latin American, Arabic and post-Soviet countries) CFD trading is only allowed for regulated firms. There are also more specific regulations: for example, in January 2021, in the UK cryptocurrency derivatives (including CFD) were banned, probably because of the high market volatility – you know what happened to bitcoin then and goes on for months.
How the Prohibition Works Actually
What does the ban mean if you happen to live in one of such countries but still want to try your luck at it? Take a look at the U.S. The ban on online CFD trading was issued by the Securities and Exchange Commission, the main regulator of this market. This means that traders can only do their job on a specialized exchange. For a regular user who decided to try trading, this means the following:
- International brokers may refuse to register you as a trader (chances are you will not even see the option of your country as you register).
- You will not be able to connect your credit card to transfer funds.
- On your local App Store or Google Play Market, CFD trading apps will mostly be unavailable.
- You won’t get away with this income if you declare it on the tax return (if you luckily have some).
- Sites even may not let you in as they recognize your location.
Some of these limitations can be overcome if you use VPN and specify some other country as you register your Google or Apple account. Others (that have something to do with authorities rather than technical access) are harder to overcome if you want to play big.
If you happen to live in the USA or another country where CFD trading is banned, you can wait until laws are changed. So it has happened in the European Union where retail CFD trading was once banned but then the ban was scrapped as ineffective. In other countries, like Hong Kong, this ban only applies to businesses, so citizens can trade on foreign platforms.
What to Do?
So far, retail CFD trading has no international recognition that would, on one hand, make the industry more civilized and reduce risks of fraud, and, on the other hand, cancel any reason for the trading to remain banned. This business remains risky; as you know, though, riskier businesses are more profitable.
If you want to do CFD, but it is prohibited in your country, you can search among foreign trading platforms. If this is illegal too, well, you can either do it while abroad or try to use VPN and fake identity (though this is not recommended, as it may cause even more serious legal issues). We don’t recommend taking any illegal measures, as you and only you are responsible for that.
The Call
Legal status is one of the greatest issues with CFD retail trading. If you have any experience of CFD trading under complicated legal circumstances and want to share it, you can leave a comment here. Or bring this to your Facebook and Twitter, to see if anyone there has anything to add.
