FCA Issues Warning About Cryptocurrency CFDs
CFDs Fall Beneath the Regulatory Jurisdiction of the FCA
The FCA explains contracts for distinction as “complicated financial tools which let you speculate on the price of an advantage [that] are often offered through online platforms.” The U.K. regulator describes cryptocurrencies as “a virtual currency that isn’t issued or backed by a central bank or government.”
Images courtesy of Pixabay, Shutterstock and fca.org.uk.
The FCA Identifies Four Important Regions of Concern: Price Volatility, Leverage, Charges and Funding, and Price Transparency
The United Kingdom’s Financial Conduct Authority (FCA) has published a warning aimed at retail investors who might be considering or dreading cryptocurrency CFDs (contracts for difference). The U.K. regulator highlighted the risks connected to the price volatility, charges and funding costs, leveraged trading products, and price transparency, and asserting that such might manifest in the cryptocurrency CFD markets.
The FCA has now issued a warning targeted at prospective retail investors seeing cryptocurrency CFDs. Even the Financial Conduct Authority states that “these products are extremely insecure, insecure products,” adding that the “warning will be to inform consumers about the risks of getting them.”
The United Kingdom’s FCA says that “CFDs are usually offered with leverage that… multiplies the effects of price changes on the gains and losses.” The U.K. regulator warns that when trading with margin, the investors “can lose money very rapidly.”
The FCA says that traders purchasing cryptocurrency CFDs are given 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 “people complaints could be called The Financial Ombudsman Service.” The FCA adds that some “Cryptocurrency CFDs might be offered by firms that are established and authorized from the European Economic Area (EEA). If [a investor] commerce[s] with a firm in another EEA jurisdiction, any person complaints will need to be known as the relevant authority in that jurisdiction”
The financial regulator asserts that “fees can include the spread, funding charges, and commissions” incurred while investing, stressing that investors “should think about the effects of these fees, which might vary considerably between companies.”
Even the Financial Conduct Authority highlights that its “protections will not compensate [shareholders] for any losses from trading. [Investors] must still be mindful and think about whether these products are right for [them].”
The UK regulator also warns that the forces driving price changes in the price of cryptocurrency CFDs might not be as transparent as those that guide the markets of currencies that are classic. The FCA notes that “there can be more significant variations from the pricing of cryptocurrencies” and “that there is a higher risk [investors] will not get a fair and accurate price for the inherent cryptocurrency when trading.”
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Even the Financial Conduct Authority warns that cryptocurrencies “have undergone substantial price volatility in the past year.” The FCA says that “cryptocurrency CFDs are an exceedingly high-risk, speculative investment… [that] are susceptible to sharp fluctuations in price due to unanticipated events or changes in market opinion. The FCA warns that “the value of a cryptocurrencies lately dropped by over 30 percent in one day,” adding that leverage trading through such explosive market conditions “areas [investors] at risk of suffering substantial losses.”
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