FCA Issues Warning Regarding Cryptocurrency CFDs
The United Kingdom’s Financial Conduct Authority (FCA) has published a warning aimed at retail investors who may be considering or soliciting cryptocurrency CFDs (contracts for difference). The U.K. regulator emphasized the risks associated with the price volatility, charges and funding costs, leveraged trading products, and price transparency, asserting that such may manifest in the cryptocurrency CFD markets.
The U.K.’s Financial Regulator Has Warned That Cryptocurrency CFDs Are “Increasingly Being Marketed to Consumers”
The FCA has issued a warning targeted at potential retail investors regarding cryptocurrency CFDs. The Financial Conduct Authority states that “these products are extremely high-risk, speculative products,” adding that the “warning is to inform consumers about the risks of buying them.”The FCA describes contracts for difference as “complex financial instruments which allow you to speculate on the price of an asset [that] are often offered through online platforms.” The U.K. regulator defines cryptocurrencies as “a virtual currency that is not issued or backed by a central bank or government.”
The FCA Identifies Four Key Areas of Concern: Price Volatility, Leverage, Charges and Funding, and Price Transparency
The United Kingdom’s FCA states that “CFDs are typically offered with leverage which… multiplies the impact of price changes on both profits and losses.” The U.K. regulator warns that when trading with margin, investors “can lose money very rapidly.”The Financial Conduct Authority warns that cryptocurrencies “have experienced significant price volatility in the past year.” The 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. The FCA warns that “the value of some cryptocurrencies recently fell by more than 30% in a single day,” adding that leverage trading during such volatile market conditions ”places [investors] at risk of suffering significant losses.”
The FCA Warns That The “Charges and Funding Costs” Associated With Cryptocurrency CFDs “Tend to Be Significantly Higher Than for Other CFD Products”
The financial regulator asserts that “fees can include the spread, funding charges, and commissions” incurred while trading, stressing that investors “should consider the impact of these fees, which may vary significantly between firms.”The UK regulator also warns that the forces driving price fluctuations in the price of cryptocurrency CFDs may not be as transparent as those that guide the markets of traditional currencies. The FCA notes that “there can be more significant variations in the pricing of cryptocurrencies” and “there is a greater risk [investors] will not receive a fair and accurate price for the underlying cryptocurrency when trading.”
CFDs Fall Under the Regulatory Jurisdiction of the FCA
The FCA states that investors trading cryptocurrency CFDs are afforded the protections “offered by the UK’s financial services regulatory framework.” Said protections means that firms providing CFDs “must be authorized and supervised by [the FCA],” and “individuals complaints can be referred to The Financial Ombudsman Service.” The FCA adds that some “Cryptocurrency CFDs may be offered by firms which are established and authorized 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”The Financial Conduct Authority emphasizes that its “protections will not compensate [investors] for any losses from trading. [Investors] should still be careful and consider whether these products are right for [them].”
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