Contracts for Differences, or CFDs, are high-risk investments that have had a lot of scams spring up around them. CFDs are marketed extensively online and can usually be identified if enough caution is taken.
Cold calls are a sure sign that something isn’t right. Brokers will try to convince you that CFDs are an easy way to develop a second income. All this without knowing anything about your particular investment situation.
Any firm selling those contracts must now warn their clients about the possible risks. If they don’t provide a risk warning, they are not operating legitimately.
A CFD is a contract between two people. One of them agrees to pay the other the difference between the current price of a stock and the price at a later date. If the price rises, the buyer pays the seller. If the price falls, the seller pays the buyer.
This isn’t an entry-level investment, and many get in over their heads quickly. CFD trading can come with leverage, essentially letting an investor bet more money than they put down.
This seems like an opportunity to make a lot of money quickly. But it can also spell disaster for those who don’t understand just how much money they’re risking.
Pushing clients to take leveraged positions is a common practice among CFDs.
Apparently, these operations are running like boiler rooms and pressure investors into making risky investments they don’t understand, in both forex directly and CFDs on forex.
This includes rules limiting leverage, a requirement to close out a client’s position when they approach the margin needed to keep the position open.
It also includes protections to prevent losing more than their total funds and requiring brokers to provide a standardized risk warning that discloses how many of their clients end up losing money. Even with these protections, brokers have continued to operate CFDs.
Many firms have continued to operate outside of these measures, and the FCA has responded with a series of suspensions on specific firms engaged in CFDs.
On June 1st, 2020, they suspended four CySEC registered firms from offering investments to UK citizens: Hoch Capital Ltd, Magnum FX, Rodeler Ltd, and F1Markets Ltd.
On June 4th, they expanded this suspension to include Maxigrid Limited, and Reliantco Investments Ltd.
If you’ve lost money investing in CFDs with these firms or other brokers, please let us know, and we’ll do our best to help you recover your funds.
The actions of the FCA have made it clear that these firms will be held accountable for their CFDs.