Online trading services have changed how we invest and encouraged a massive increase in the number of day traders. While the rules in the UK are relatively straightforward, it is essential that you abide by the regulations and are aware of the tax implications of your trading. This is an ever moving situation and you should be mindful of how changes going forward may impact your trading habits.


What is regulatory risk?


The definition of regulatory risk is simple; your trading habits do not comply with future regulations. This may involve rules relating to:-


· Leverage

· Market abuse


Whether looking at leverage or market abuse, regulations surrounding these subjects have one target; maintaining market integrity.


Regulations covering online trading


As we mentioned above, leverage and market abuse are two of the main regulatory matters affecting those undertaking online trading. We will now take a look at these in more detail:-




There are strict regulations regarding leverage, which can be broadly translated into the level of risk taken by individual investors compared to their available funds. The potential for significant profits/losses increases the higher the leverage. Investors need collateral to cover leverage regulations; otherwise, their trading positions will be closed. The degree of leverage will change according to underlying market conditions, which investors need to be aware of.


Market abuse


The subject of market abuse covers several different matters, such as:-


· Inside information

· Price manipulation


The subject of inside information, using and relaying inside information to others, is well documented. In years gone by, some traders were able to circumvent insider trading regulations by encouraging others to deal on their behalf - this avenue was closed some time ago.


When it comes to price manipulation, this can take many different forms, such as:-


· Working with concert parties

· Encouraging others to deal

· Spreading misinformation

· Attempting to manipulate prices


We only need to look to the US to see the high-profile manipulation of the GameStop share price back in 2022 - which saw members of a particular trading platform working together. This was an attempt to combat short trading in the stock, subsequently creating enormous losses for those who had gone public with their short positions. This prompted a tightening of regulations to protect market integrity going forward.


At first glance, it may be challenging to think of any regulatory issues which may impact your online trading, but when you see them written down, your mind will start to appreciate the challenges.


The impact of regulatory changes


Whether you are dealing with options, shares, bonds or any other type of investment, if you fail to abide by the regulations, there may be potentially significant consequences.


Legal ramifications


While relatively rare, failure to abide by perhaps more market than administrative regulations can lead to legal action, penalties and, in some cases, more severe consequences. While some may see this as “a victimless crime”, the regulators will take action where required to protect market integrity.


Trading ban


Those who fail to abide by regulations could see a ban on offline and online trading. Due to how the FCA regulates financial services companies in the UK, simply moving to another broker wouldn’t beat any ban.


Restricted trading


In some cases, the regulator/broker may decide to restrict the trading opportunities of an individual if they fail to abide by either FCA regulations or broker trading rules. If restrictions are implemented, those who undertake regular online trading could feel a significant hit to their pocket.


Occasionally, there are examples of individuals who will look to manipulate market prices, often involving relatively illiquid companies. High-profile court cases can sometimes follow, and while prison time is unusual, it is not out of the question.




Those undertaking any form of online trading need to abide by the strict regulations, and monitor changes in the future. Most brokers will make you aware of changes relevant to your situation, although it can be helpful to do your research, gathering more in-depth knowledge.


Where your online trading activity is deemed a "business, " you may be subjected to income tax instead of capital gains tax regulations. How you are classified could make a huge difference to your income and tax liabilities - it is essential to take professional financial advice.

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