FCA Warns Investors About Pushy CFD Sales Tactics

Contracts for Difference (CFDs) are a type of high-risk investment where you try to make money by guessing whether the price of things like company shares, oil, or currencies will go up or down. You never actually own the asset; you’re just betting on how its price will change.

It is important to know that:

• You can make or lose money depending on how prices move.
• Losses can be much bigger than the amount you put in, meaning that you could end up owing money.
• If a broker trades for you, they may charge commission every time they buy or sell, which can quickly add up.
• Many people have lost large sums of money, including their pensions, because they didn’t fully understand the risks.
• CFDs are only suitable for very experienced or wealthy investors who can afford to lose the money they invest.
• Sales of CFDs to retail clients have been restricted since 2019.

A retail client is an everyday investor, namely someone who isn’t a professional trader or financial institution. They tend to invest their money in shares, funds, or savings products.

Because retail clients are not expected to have specialist financial knowledge, they are given extra protections under financial regulations to help ensure they understand the risks before investing.

Financial firms must not market or sell CFD products to retail clients.

A professional client is an experienced investor who understands financial markets and the risks involved. They might be a business, a financial firm, or an individual who meets certain wealth or experience criteria.

Because professional clients are considered more knowledgeable, they receive fewer protections than retail clients, meaning they are expected to make informed decisions and accept a higher level of risk.

The FCA’s warning aims to protect consumers from being misled or pressured into high-risk products that could lead to severe and potentially life-changing financial loss.

Some investment firms have been encouraging people to register as professional clients even when they don’t qualify, so that they can sell products that would otherwise be restricted.

In doing so, investors no longer have the vital safety protections designed to stop them from losing more money than they can afford. These protections include limits on borrowing (known as ‘leverage’) and safeguards that prevent losses beyond the amount invested.

These protections save consumers hundreds of millions of pounds each year and help prevent around 400,000 people from losing more than their original stake.

The regulator is also concerned about ‘finfluencers’, social media promoters encouraging people to invest in risky or unregulated CFD schemes that promise unrealistic profits. In one case, over 90,000 people lost around £75 million after following such schemes.

In addition, under the Consumer Duty, firms must communicate clearly, act fairly, and only offer products suitable for customers’ needs and their level of understanding.

Sarah Spruce, Legal Director at TLW Solicitors, says:

“We’re hearing from more and more people who’ve lost money through CFD investments that they didn’t fully understand or were pressured into. Sadly, some were told to register as ‘professional clients’ without realising this meant losing important protections that could have limited their losses.

If you or a loved one have lost money through CFDs or feel you were misled about the risks, you’re not alone. Please get in touch for a confidential, no obligation discussion to explore your options. Our specialist financial mis-selling team has helped many people in similar situations, and we’re here to listen, explain your rights, and guide you through the next steps, including where eligible, pursue a no-win, no-fee claim for compensation.”