CONTRACT FOR DIFFERENCES (CFD) CLAIMS

A CFD is typically a short-term agreement where you trade on the value of a particular asset (rather than own the asset outright). A CFD investor therefore never actually owns the asset but rather bets on whether the value of the asset goes up or goes down. When you trade CFDs you are in essence agreeing to exchange the difference in the price of the asset from the point which the contract is opened to when the contract is closed.

Leverage in the context of a CFD is how you gain exposure to a large position without having to commit the full cost of doing so from the outset. This allows you to spread your initial capital investment further or to invest an amount that you would not ordinarily be able to afford. However, what investors fail to realize is that you are also exposed to significantly increased losses should the investment fail, and you are then left owing significant sums to the trading platform. There are limits on leveraged positions depending upon the types and volatility of the underlying investment, for instance if you are trading in cryptocurrency the ratio is just 2:1. A lot of platforms however let you exceed these limits when they shouldn’t.

Trading on margin in the context of a CFD is where the investor deposits a sum of money to open a position (otherwise known as a deposit margin). The investor will then be required to have a maintenance margin (or a minimum sum of money held within your account to keep the position open). If your account falls below this maintenance margin and you do not deposit additional funds, then your position will be closed and any losses at that point will be realized.

The Financial Conduct Authority and the Financial Ombudsmen Service have found that the vast majority of investors who have invested into CFDs have lost their money.

Investors were often advised to transfer their pension savings into a SIPP so that they could invest into a CFD. Others were advised to invest their cash savings or cash in other financial products or remortgage their property so that they could invest. These investors have often found that they have lost significant sums of money.

Often investors are also encouraged to ‘chase their investment’. We have seen instances where investors have lost their initial investment only for their advisor to advise them to invest more money and that they will get their money back. If you have received negligent advice to invest into a CFD and lost money, please contact us today.

CFDs are not regulated by the Financial Conduct Authority. Due to their complex and high-risk nature CFDs should only be offered to sophisticated investors and those that can afford to lose their investment. On the 1^St August 2019, the Financial Conduct Authority, imposed a permanent restriction on the sale of CFDs and CFD like options to retail investors. The restriction applies to firms acting in or from the UK and: bans the sale, marketing and distribution of binary options to retail consumers; and restricts the sale, marketing and distribution of contracts for differences and similar products to retail consumers.

If you have received negligent advice from a regulated financial advisor to invest into a CFD then you might be able to bring a claim for compensation. Examples of unsuitable advice include:

• You may not have been advised about the risks involved.
• You may have been advised to invest money that you could not otherwise afford to lose.
• You may have been contacted out of the blue and encouraged to trade in CFDs.
• You were pressurized into investing more and more money into the CFD to either protect your position or recover initial losses.