Should Day Trading Be More Regulated?

Image Source: Unsplash

 

When it comes to money-related addiction, we tend to think of things like sports betting and slot machines. However, if you do want to bet your money there are plenty of different ways to do it. Although most financial investing is a well-thought-out and researched pastime, anyone can be invest. That is causing some to fight for stricter regulations, and more protection for those that take part.

A Look at Day Trading

Day trading has been legal in the UK for decades but until recently it’s been reserved for wealthy London bankers who’ve attended prestigious universities to study economics or business. As with many industries, the internet opened trading up to anyone that had a stable connection.

The internet has brought previously elusive industries to the masses, but that’s not always a good thing. It takes years of practice to be a good day trader, and even then you’re at risk of losing thousands of pounds if you make a few bad trades. Inexperienced day traders have been known to lose their entire savings and get into a lot of debt while trying to make their fortune which has prompted calls for regulations to be tightened.

How Is Day Trading Regulated?

Currently, there are very few regulations around day trading, if any. In fact, day traders don’t even have to pay a standard tax. Traders using spread bets are exempt from capital gains tax, while CFD trading carries no tax at all. Any profits from Forex trading, however, are liable for capital gains tax.

In some countries, there are rules around the maximum number of trades you can make in a certain period of time, like a day or week. In the UK there are no rules around this, which means you can trade as many times as you would like. If you make more than 3 trades in a day the platform you’re using might flag you as a pattern day trader and impose restrictions on your account like a minimum account value, but the UK government has no rules on this. Traders are free to make transactions 6 days a week - whenever the stock market is open.

The Need For More Regulation and Protection

In recent years there have been many campaigns that have focused on the need for increased regulations. For a lot of people, day trading feels a lot like gambling. The constant excitement of wondering whether you’re going to “win” and thinking about different strategies that you can use to try to improve your odds is addictive. Day trading can result in the same kind of issues as gambling addiction, but unlike the gambling industry, there are no regulations and no specific support which means inexperienced or addicted traders can lose thousands in a day and go into debt without any of the support that gamblers would get.

Gambling-related suicides have become a sad fact of life in recent years, and it’s something that people have become more aware of thanks to the work of campaigners and charities. The UK government increased regulations on the gambling industry, making it a legal requirement for gambling companies to run affordability checks. The government also moved to ban the use of credit cards for depositing into gambling accounts as a result of petitions put to the government. Finally, new regulations forced gambling companies to limit the accounts of any users that had lost large amounts of money in a short period of time.

Gambling Regulations

Although gambling has taken part throughout the world for hundreds of years, it is only relatively recently that proper regulations have been put into place. In fact, the UK Gambling Commission regularly review rules and regulations and adjusts them as they see fit. Everyone accepts that the regulations are in place and why they are needed. So, even though day trading may feel as though regulations will stifle the industry, the truth is that if they were introduced then in a couple of years it would feel like they were always there rather than something new to try and workaround.

For example, these UK online casinos are regulated by the UK Gambling Commission & are used to having rules changed which means they have to change the way their platform works. It isn’t something that the industry sees as a hindrance and instead it is simply something that they need to get on with & adapt to. Day traders might currently enjoy a regulation-free life, but truth is that there are many regulations that could be introduced that would actually improve things, even if it is hard for investors to see it that way currently.

Will Regulations Actually Happen?

Despite the fact that day trading has a number of similarities with gambling, there are no such regulations in the trading industry even though there are plenty of reports of people getting addicted to day trading and gambling all of their money away. Gambling using loans is also a very common strategy, called “buying on leverage”. For professional day traders, this is a calculated risk that they can afford to take, but for others, it simply normalises getting into debt for trading as amateurs hope to make the same big gains.C

Currently, it’s almost impossible to find support for day trading addiction - internet searches simply return pages of articles talking about people whose lives have been ruined by day trading addiction.

As more people go into debt and find that they have nowhere to turn to for support, it’s vital that the government find ways to help the people who needed it and reduce harm. The day trading industry needs reform, starting with bringing in measures that will protect traders from gambling-related harm. Measures like self-exclusion, limiting the ways that traders can deposit, and restricting smaller accounts that lose large amounts of money in a short space of time could go a long way to helping those who realise they’re struggling with addiction.