Today, the United Kingdom’s Financial Conduct Authority (FCA) issued a warning for investors in cryptocurrency contracts for difference (CFD), mentioning the risks involved.
The warning states: “Contracts for differences (CFDs), including financial spread bets, with cryptocurrencies as the underlying investment are increasingly being marketed to consumers. These products are extremely high-risk, speculative products. This warning is to inform consumers about the risks of buying them.”
Last month, the FCA first sounded the alarm regarding cryptocurrency CFDs as many online derivative companies in UK including IG Group, UK’s largest online trading platform, now allow Bitcoin and Ethereum trading on their platforms.
In its statement, FCA said: ”We are concerned about the growth in retail clients trading in CFDs, particularly those offered with a cryptocurrency as the underlying asset…The price volatility of the asset comes with significant risks to retail investors.”
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A month before, the regulatory body also issued a warning against initial public offerings, or IPOs.
In the UK, all types of CFD, including cryptocurrency CFDs, come under the regulation of FCA. So investors receive all the types of protection offered by the regulatory body. However, the regulatory protection does not include losses incurred while trading, and trading using CFDs is very risky.
CFDs allow traders to speculate on the changing price of an asset, and traders often enjoy leverage while investing in these instruments.
Cryptocurrency CFDs are totally speculative investments as the coins are not backed by any government or regulatory body. They are also extremely high-risk investments because of the volatile nature of cryptocurrencies. In many occasions, crypto tokens have shown changes of more than 30 percent (in some cases even 50 percent) in their values.