With the rise of popularity of cryptocurrencies in the financial market, a warning has been issued to investors. The UK regulatory body urged caution to investors by highlighting the dangers of investing in cryptocurrency CFDs. FCA UK Cryptocurrency CFD risks warning issued.
14 November, AtoZForex - Earlier this year, the British watchdog has warned investors about the risks related to ICO. Following this warning, the UK regulator now issues a warning related to cryptocurrency contracts for differences (CFDs), urging investors to take caution as such products are extremely high-risk.
FCA UK Cryptocurrency CFD risks warning
The Financial Conduct Authority (FCA) in the United Kingdom warned investors stating that CFDs with cryptocurrencies as the underlying investment are speculative products. The warning reveals:
“Contracts for differences (CFDs), including financial spread bets, with cryptocurrencies as the underlying investment, are increasingly being marketed to consumers. These products are extremely high-risk, speculative products. This warning is to inform consumers about the risks of buying them.”
The FCA has also warned investors last month regarding cryptocurrency CFDs as many online derivative companies in UK are now allowing Bitcoin and Ethereum trading on their platforms.
FCA UK statement issued for investors
The FCA regulates all types of CFDs, including cryptocurrency CFDs and offers all types of protection to the investors. CFDs allow traders to speculate on the changing price of an asset. Traders often enjoy leverage during the investment in the CFDs. However, the FCA reiterates that trading cryptocurrency CFDs are speculative and extremely high-risk investments because of their volatile nature.
In many situations, crypto tokens have shown changes of more than 30 percent and in some cases even 50 percent of their values. In its statement, the FCA stated:
“We are concerned about the growth in retail clients trading in CFDs, particularly those offered with a cryptocurrency as the underlying asset… The price volatility of the asset comes with significant risks to retail investors.”
Bitcoin prices have been extremely volatile in recent in months hitting highs of almost $7,500 last week before sliding $1,600 in a matter of days. The FCA is concerned that the volatility of cryptocurrencies combined with CFD leverage could lead to investors suffering huge losses.
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