A financial regulator in the UK has recently issued a warning for consumers looking to get into the cryptocurrency market by investing in derivatives. On the website for the U.K. Financial Conduct Authority, the agency issues a warning to investors stating that those considering entering a cryptocurrency contracts-for-differences or CFDs should be wary.
Under a CFD, the two parties in the contract agree to pay the other side in the event of the price going up or down with the underlying asset, which in this case is cryptocurrency. CFDs allow for consumers to essentially bet on the future price of an asset, which can often lead to high gains, but also large drops in price as well. The use of CFDs fall under the view of the FCA and because of that, the products are within the jurisdiction of the agency.
The agency stated that the guidance from this body does not mean that “these protections will compensate for any losses from trading.” The agency stated that “Cryptocurrency CFDs are an extremely high-risk, speculative investment. You should be aware of the risks involved and fully consider whether investing in cryptocurrency CFDs is appropriate for you.” The FCA listed the volatility, leverage, charges and funding costs as four different risks to investing in these so called cryptocurrency futures, and because of that highly urge against investing any money.
The agency also note that the fees associated with investing are extremely high in comparison to any other futures contract. This release and subsequent warning to investors is not the first time that the agency has done so, and most definitely will not be the last. Back in June, the agency stated that “we do have to exercise a degree of caution” on the matter of cryptocurrency.