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UK financial regulator warns of cryptocurrency derivatives

The UK financial regulator is warning consumers about a specific type of derivative contract based on cryptocurrencies.

14.Nov.17 11:08 PM
By Daria Zaytseva


UK financial regulator warns of cryptocurrency derivatives

In a release on its website today, the U.K. The Financial Conduct Authority (FCA) warned investors who might consider entering into cryptocurrency contracts-for-differences or CFDs. Within the framework of the CFD, both parties agree to pay both sides in case the underlying value of an asset - in this case, an amount of cryptocurrency means changes over time.

According to the agency, these products allow speculating in prices for various assets, and while cryptocurrencies fall under this umbrella, they must be considered high-risk.

CFDs fall within the scope of the FCA, which means that companies that offering such products are under the jurisdiction of the agency. Legal guarantees aside, the agency warned that "these protections will not compensate you for any trade losses."

The FCA listed price remuneration, leverage, costs and financing costs, as well as price transparency as four risks to investment in crypto-based CFDs. The agency also noted that the initial fees needed to invest in a crypto-based CFD are higher than for other contracts, and because of the volatility of pricing of cryptocurrency, an investor can end up putting more than the product they receive.

Today's issue is not the first time that the FCA has called for peace of mind around investments related to cryptocurrencies.

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