British regulator, the Financial Conduct Authority, has issued a warning to investors against venturing into cryptocurrency contracts for differences (CFDs). The agency claimed that digital currency-based CFDs are considered to be high-risk investments.
In a statement posted on its website in mid-November 2017, the FCA issued its warning to investors against investing in crypto-based CFDs due to several risks that they could face. Among the risks are price volatility, leverage, charges and funding costs and price transparency.
The agency further added that investors should carefully examine whether venturing into virtual currency CFDs is right for them. It claimed that the legal safeguards currently in place cannot protect them and will not compensate them for any losses that they could incur from trading.
"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."
In a CFD deal, the transacting parties agree to pay either side when the underlying value of an asset changes over time. The CFD products enable users to speculate on the prices of various assets. While digital currencies can be considered as CFD products, the agency warned that investing in them is very risky.
Previous FCA warnings against cryptocurrency trading
The FCA has already issued several investor warnings against investments related to digital currencies in the past.
In June 2017, FCA Director of Strategy and Competition, Chris Woolard, warned that investors should exercise a degree of caution when dealing with cryptocurrencies.
In September, the regulator has also cautioned that initial coin offerings (ICO) are “very risky” investments and asked would-be participants to inform or report to the agency any possible fraud that they may encounter in the cryptocurrency-based funding model.