The United Kingdom’s Financial Conduct Authority (FCA) has published a warning to retail investors who may be considering or soliciting cryptocurrency CFDs (contracts for difference).
The UK 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 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 UK. regulator defines cryptocurrencies as “a virtual currency that is not issued or backed by a central bank or government.”
The Financial Conduct Authority warns that cryptocurrencies “have experienced significant price volatility in the past year.” It 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 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 states that investors trading cryptocurrency CFDs are afforded the protections “offered by the UK’s financial services regulatory framework,” but adds that “protections will not compensate investors or any losses from trading. Investors should still be careful and consider whether these products are right for them.