FCA warns consumers about risks in investing in cryptocurrency contracts for difference

Cornelia Mascio
Novembre 14, 2017

Contracts for Differences (CFDs) are a trading tool.

The FCA said it did regulate CFDs, but warned such bets should only be placed by experienced investors with sophisticated knowledge of financial markets.

CFDs allow investors to bet for or against the price of a raft of financial and non-financial products.

It said that CFDs are typically offered with leverage which means you only need to put down a portion of the investment's total value.

But the leverage multiplies the impact of price changes on both profits and losses. It said it had noticed an increase in CFDs linked to cryptocurrency valuations being "marketed to consumers". "They are vulnerable to sharp changes in price due to unexpected events or changes in market sentiment". The value of some cryptocurrencies has fallen by more than 30% in a single day.

The UK financial regulator, the FCA, has announced that effective January 3, 2018, firms offering binary options in the UK will be regulated by the FCA, and will no longer be licensed by the Gambling Commission.

Such bets are complex, high-risk, and the majority of consumers who place them lose money, according to the FCA.

Binary options are also regulated as investment products in many other European Union (EU) countries.

The FCA said its data suggests a majority of consumers lose money when making bets and that consumers find it hard to make sustained profits over a series of bets.

Price transparency: when compared with currencies, there can be more significant variations in the pricing of cryptocurrencies used to determine the value of your CFD position. There is a greater risk you will not receive a fair and accurate price for the underlying cryptocurrency when trading.

In particular, if you are contacted out of the blue, pressured to invest quickly or promised returns that sound too good to be true, it could be a scam. If they are, they will appear on the FCA Register of financial services firms.

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