The FCA (Financial Conduct Authority) gives warning about the involvement of risk while investing in cryptocurrency CFD.
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”.
The FCA describes CFDs as “huge financial instruments that allow speculating on the price of an asset that offers via online platforms”. Further, UK regulator defines cryptocurrencies as “a virtual currency that is not backed by a government or central bank”.
FCA concerns the areas of risks:
FCA states that CFDs are formal offers with leverage which multiple the impact of price changes on profits and losses. Thus, the UK regulator warns that while trading investors might lose money quickly.
Furthermore, with the regards, FCA states that,
“cryptocurrency CFDs are an extremely high-risk, speculative investment… [that] are vulnerable to sharp changes in price due to unexpected events or changes in market sentiment. Thus, the value of some cryptocurrencies recently fell by more than 30% in a single day. Therefore, leverage trading during such volatile market conditions places [investors] at risk of suffering significant losses”.
The financial conduct authority asserts further that, pointedly charges tend to be higher than for CFDs other products. The fees can also include funding charges and commissions. However, the impact of fees may vary between firms.
Furthermore, it also warns there will be more price fluctuations in cryptocurrencies CFD. Thus, it might not give clarity regarding the market of traditional currencies.
UK’s financial services regulatory framework
FCA states that investor trading cryptocurrencies CFDs afforded safeties offers by financial service of UK’s regulatory framework. Thus, it clarifies that:
- firms offering CFDs must be authorizing and supervising by us
- individual complaints can be referring to the FOS
- consumers have access to the FSCS
Moreover, the FCA adds that some,
“Cryptocurrency CFDs may offer by firms which are establish and authorizing in the European Economic Area (EEA). If [an investor] trade[s] with a firm in another EEA jurisdiction, any individual complaints will need to be referred to the relevant authority in that jurisdiction”.
Eventually, FCA (Financial Conduct Authority) emphasizes that “protections will not recompense for any losses from trading. It should still be careful and consider whether these products are right for them”.