UK Finance Regulator Warns Against Cryptocurrency Derivatives

A U.K. finance regulator has warned consumers about a particular kind of derivative contract based on cryptocurrencies.

In a release on its website, the U.K. Financial Conduct Authority (FCA) cautioned would-be investors in cryptocurrency contracts-for-differences, or CFDs. Under a CFD, the two parties involved agree to pay either side in the event that the underlying value of an asset – in this case, an amount of cryptocurrency – changes over time.

These products allow users to speculate on the prices of different assets, and while cryptocurrencies fall under this umbrella, they ought to be considered very risky products, according to the agency.

CFDs fall under the purview of the FCA meaning that companies offering such products are within the agency’s jurisdiction. Legal safeguards aside, the agency warned that “these protections will not compensate you for any losses from trading.”

The agency said:

“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 price volatility, leverage, charges and funding costs, and price transparency as four risks to investing in crypto-based CFDs. The agency also noted that the initial fees required to invest in a crypto-based CFD are higher than for other contracts, and due to the volatility in cryptocurrency pricing, an investor could end up putting in more than the product they receive is worth.

Today’s release isn’t the first time the FCA has called for calm around investments related to cryptocurrencies. Back in June, FCA director of strategy and competition Chris Woolard said that “we do have to exercise a degree of caution.”

In September, the FCA said that initial coin offerings (ICOs) are “very risk” and advised would-be contributors to report any potential fraud they may encounter.

Business man miniature image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

Comments

comments

Filed in: Bitcoin Buzz Tags: ,

You might like:

Bancor Bounce Back? ICO Is Winning Adoption Bancor Bounce Back? ICO Is Winning Adoption
Lithuania's Central Bank Probes 100 Million Euro ICO Lithuania's Central Bank Probes 100 Million Euro ICO
PC Giant Lenovo Seeks Blockchain Validation Patent PC Giant Lenovo Seeks Blockchain Validation Patent
Coinbase. Ripple. Uphold? Investor Greg Kidd Defends Bold Bet Coinbase. Ripple. Uphold? Investor Greg Kidd Defends Bold Bet
Banks Buy Stakes in Blockchain Startup SETL Banks Buy Stakes in Blockchain Startup SETL
Long Blockchain Is At Risk for Exchange Removal Again Long Blockchain Is At Risk for Exchange Removal Again
Bottom Confirmed? Bitcoin at 20-Day High Near $11K Bottom Confirmed? Bitcoin at 20-Day High Near $11K
Record Retest? ETC Looks Poised on Double-Digit Climb Record Retest? ETC Looks Poised on Double-Digit Climb
© 2018 Virtual Mining Bitcoin News. All rights reserved. XHTML / CSS Valid.