Concerns have been raised regarding the accessibility of high-risk Contracts for Difference (CFDs) on popular trading platforms, despite regulatory requirements for appropriateness tests. An individual without prior knowledge or experience in CFDs reported being accepted to trade them on some platforms.
The Financial Conduct Authority (FCA) states that eight in 10 people lose money when investing in CFDs, with research by the FCA finding the average loss for a CFD trader to be £2,200. CFDs involve betting on asset price movements without owning the underlying investment and require the use of leverage, which heightens risk.
While UK-regulated CFD brokers are required to conduct an 'appropriateness test' for prospective customers, some platforms reportedly accepted an applicant who expected to fail due to a lack of knowledge and a risk-averse nature. Countries such as the US and Belgium have banned CFDs from being sold directly to consumers, and the FCA banned CFD trading on crypto in the UK in 2020, citing their unsuitability for retail consumers.
GamCare, a gambling harms charity, has noted a rise in callers experiencing issues with financial markets, drawing parallels between CFD trading and gambling due to its high-risk and potentially addictive nature. The FCA has also been addressing illegal promotions of CFDs by 'finfluencers' on social media.