The UK Financial Conduct Authority (FCA) has issued a warning on the risks of investing in cryptocurrency contracts for differences (CFDs).
Cryptocurrency CFDs allow investors to speculate on a change in the price of a cryptocurrency such as Bitcoin or Ethereum.
The regulator said that CFDs, including financial spread bets, with cryptocurrencies as the underlying investment, are “extremely high-risk, speculative products.” The FCA explained that CFDs are typically offered with leverage, meaning that investors need to put down a portion of the investment’s total value.
“However leverage also multiplies the impact of price changes on both profits and losses. This means you can lose money very rapidly,” it added.
The FCA further listed the potential risks which the investors would be exposed to when they invest in such instruments. These include price volatility, leverage, charges and funding costs, and the risk of not receiving a fair and accurate price for the underlying cryptocurrency when trading.
Importantly, investors trading cryptocurrency CFDs have the protections offered by the UK’s financial services regulatory framework as the FCA regulates CFDs.
“However, these protections will not compensate you for any losses from trading,” the FCA clarified.
