"Contracts for difference are a type of financial instrument known as derivatives because they follow the price of an underlying asset, such as stocks, the Australian dollar, and other financial products. They are traded "over-the-counter" (meaning not on a public exchange) on platforms run by CFD providers. Investors can profit from both upward or downward movements in financial assets with CFDs."
"CFDs are leveraged products, which means an investor is borrowing money to speculate on the price of an asset. A small price change in the underlying stock or commodity can have an amplified effect by increasing the gain - or the loss - on the CFD. For example, this can be as little as paying $1 upfront to gain the same trading power as $100."
"Australia's corporate regulator has secured refunds of A$40 million to more than 38,000 investors in risky financial products, following a review of the industry. The Australian Securities and Investments Commission (ASIC) raised concerns that marketing of high-risk products known as "contracts for difference" or CFDs, failed to clearly explain the risks involved. This is just ASIC's latest intervention in more than 15 years of ongoing concern with the potential harm of CFDs to retail investors."
ASIC secured A$40 million in refunds for more than 38,000 investors after reviewing risky contracts for difference (CFDs). ASIC found that marketing of CFDs did not clearly explain the risks and that regulatory interventions have been ongoing for more than 15 years to address potential retail investor harm. CFDs are leveraged, over-the-counter derivatives that follow prices of underlying assets such as stocks and currencies and allow profits from rising or falling prices. Traders pay a fraction of the asset price as margin, which amplifies gains and losses. In 2023–24 over 133,000 retail clients (68%) lost more than $458 million trading CFDs. Marketing refinement to target suitable audiences remains unresolved.
Read at The Conversation
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