CFD’s – Contracts for Difference – are derivative financial products that basically involve “betting” on the performance of the stock market rather than investing in it.
The contract usually exists between two parties – a buyer and a seller. The seller agrees to pay the buyer the difference between the current asset value and the value at the time of contract. However, if the difference ends up being negative, then the buyer pays the seller.
CFD’s are therefore considered very high-risk investments as they put the individual at greater risk of losing significantly more than the original investment.
In January 2018, the FCA issued an open letter to providers and distributors of CFD’s outlining their concerns after they carried out a review into the CFD Market.
Their report stated “Most providers and distributors in our review were unable to offer a satisfactory definition of their target market or to explain how they align the needs of this group to the CFD product they offered”
They also found that 76% of retail clients who had bought CFD products between 2015-2016 – either on an advisory or discretionary basis – had lost money.
The FCA also had concerns about the way in which these companies determined the suitability of these products. In fact, Belgium actually imposed an outright ban on the sale of CFD’s to retail clients!
CFD’s are really only suitable for knowledgeable investors who can afford the risk. Unfortunately, some Financial Advisers have not acted in the best interest of their clients when making recommendations.
How can CFDs be Mis-sold?
We treat every mis-selling case on an individual basis, but generally speaking if you received advice to transfer into a CFD and…
- You feel that the level of risk involved with CFD’s and how they work was not adequately explained to you
- You felt pressured to transfer or invest in CFD’s
- You suffered losses as a result of the advice to invest in CFD’s
Then you may have been mis-sold and as a result, be eligible to claim compensation. If you’d like to know more about mis-selling and how the claims process works, we are here to help.