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UK’s FCA warns of cryptocurrency CFDs risks

Nov 15 2017
By
Jonathan Smith

UK’s financial markers and services providers regulator, the Financial Conduct Authority (FCA), has warned consumers of the risks of trading in cryptocurrency CFDs and noted they are “extremely high-risk, speculative products”.


The warning comes against the background of an increasing number of forex and CFD brokers offering this type of instruments, including some regulated by the FCA, such as IG, HYCM and XM.


The main risks outlined by the regulator include the high price volatility of the underlying assets such as bitcoin and ether. For example, the value of some cryptocurrencies recently fell by more than 30% in a single day.


Another risk is carried by the leverage. Unlike the cryptocurrency exchanges who offer leveraged trading with a relatively high margin requirement, some of the forex and CFD brokers offer leverage of up to 1:50. The leverage, however, is a two-edged knife and affects both profits and losses. Eventually a client can even end up owing money to the firm.


Furthermore, FCA notes that often charges on crypto CFDs are much higher than for other CFD products, as well the existence of wide variations between the pricing of cryptocurrencies and the risk of not receiving a fair and accurate price for the underlying cryptocurrency when trading.


In the past several months the forex and CFD brokers are falling all over themselves to offer various instruments with cryptocurrencies as underlying assets. Most offer CFDs, but there are some like eToro who offer cryptocurrency investment portfolios, while Swissquote teamed up with the cryptocurrency exchange Bitstamp to offer trading in bitcoin.



TAGS: fca  uk  cryptocurrency  bitcoin  cfd 
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