Regulatory crackdowns have disrupted many European CFD brokerages. Tougher restrictions on leveraged products and a growing trend toward even tighter regulations are making the outlook for CFD trading in Europe decidedly gloomy. If your CFD business is starting to feel the heat, it might be time to consider a pivot. And no, we’re not talking about reinventing the wheel or sinking millions into custom development. What if you could redirect your business quickly—and without breaking the bank? The answer is listed markets.

Recent regulatory changes may propel the European listed derivatives market, despite its limited retail trading appeal. Regulators have long viewed futures and options markets as more stable and safer, and they are now opening up to retail traders. Regulator pressure on CFDs strengthens the argument for market expansion. The truly great news is that you don’t need a custom-built solution to get started. The infrastructure is already there, ready for brokers like you to plug into—without months of development or a sky-high price tag.

The regulatory shift and retail broker concerns

The regulatory landscape is changing, and it’s doing so quickly. In July 2023, Spain imposed a ban on CFD promotions, joining other European nations that have already restricted leveraged products like CFDs, warrants, and turbos. This shift in policy is fueled by concerns over the risk of significant losses for retail traders. The Spanish move, although not the largest retail market in Europe, is a signal to the broader EU that regulators are tightening their grip on retail trading.

While the German market has seen a positive shift with the repeal of its punitive tax loss offset laws, this is a rare win. For brokers in other markets—or those looking for more sustainable long-term growth—pivoting to listed markets remains a prudent strategy. And according to a recent Acuiti survey, 69% of proprietary trading firms in Europe believe that more EU countries will follow Spain’s lead by imposing similar restrictions.

The restrictions on CFDs and other retail instruments could have a direct impact on your business. In fact, 80% of retail brokers surveyed indicated that they would seek to grow institutional flows to offset the loss of CFD revenues. Almost 70% said they would launch or expand their offerings in execution of listed products like futures and options, and 55% would look to start clearing listed products.

The shift toward listed derivatives offers retail brokers an opportunity to diversify and future-proof their businesses. But with this shift comes a need for quick adaptation—and the key to this is having the right tools to execute efficiently and with minimal disruption.

Why listed markets?

Listed derivatives, particularly futures and options, offer more stability and a clearer regulatory framework compared to the unregulated world of CFDs. This shift is not just a response to regulatory pressure—it’s a smart business move. Retail brokers looking to expand into institutional markets and add futures and options to their product offerings will benefit from the growth of listed derivatives. The U.S. market, for instance, has seen a surge in retail participation in listed derivatives, largely driven by the launch of smaller-sized contracts and zero-day options. These products are gaining traction, and there’s no reason Europe can’t follow suit, especially as European exchanges are already rolling out similar products.

According to research, more than half of respondents in the Acuiti survey believe that regulatory restrictions on retail products will have a positive impact on Europe’s listed markets. With an influx of retail flows, liquidity would increase, offering greater opportunities for institutional firms and potentially boosting revenues. Less than 10% of survey respondents expected increased volatility, which suggests that while the shift may bring new challenges, the benefits—particularly in terms of liquidity and market diversity—would outweigh the risks.

The challenges: Education and costs

Despite the potential for growth, there are hurdles to overcome. The biggest of these is education. Retail traders who have been used to the simplicity of CFDs may find futures and options more complex. They often cite a lack of understanding of the products and, more importantly, the higher costs associated with trading them—especially when it comes to market data fees.

Retail brokers are also aware of these challenges. A significant 55% of brokers surveyed mentioned that education and customer support would be crucial to drive the adoption of listed products. Furthermore, the cost of trading, including market data, is a concern. As one broker interviewed for the study put it, while the move to listed markets offers potential, the “higher costs” and “complexity” could limit the success of this transition unless adequately addressed.

This is where technology becomes crucial.

DXtrade XT: Shortcut to listed markets

To take advantage of the opportunities in listed derivatives, brokers need to adapt quickly—and that means investing in the right technology. As survey participants put it, pivoting to institutional and listed products will require “investment in technology,” specifically in areas like pre-trade risk management and order routing.

And that’s where DXtrade XT comes in. If you’re a CFD broker looking to shift into the world of listed derivatives, you don’t need to reinvent your entire business model. DXtrade XT is a comprehensive, off-the-shelf solution that allows you to seamlessly integrate into listed markets without the cost and time associated with custom development. With DXtrade XT, you can quickly expand your offerings, manage risk, and streamline operations—all while keeping overhead costs low.

Bottomline

The challenges are clear: regulatory pressures, shifting market dynamics, and the need for operational efficiency. But with these challenges come significant opportunities for brokers willing to evolve. The move toward listed derivatives could offer a lifeline for retail brokers facing the end of the CFD boom. By embracing listed markets, brokers can tap into new revenue streams, increase liquidity, and position themselves for long-term growth.

The key to success in this transition is the right technology, and DXtrade XT provides a platform to help you pivot quickly and effectively. Whether you’re expanding into futures and options, looking to offer better risk management solutions, or simply aiming to scale your operations, DXtrade XT is built to support you every step of the way.

If you’d like to explore how DXtrade XT can support your transition into listed markets, don’t hesitate to reach out. We’re happy to arrange a demo or consultation to show you how it can fit your business needs.

Let’s talk about how we can help you navigate this shift with ease and efficiency.