CFD or Contracts for Difference Trading is a type of derivative trading that allows an investor to wager on a financial instrument’s price movement. Some examples of these instruments are commodities, shares, cryptocurrencies, and Forex. Investors can trade in the market as it unfolds even without owning the product. In some ways, this entails betting on the price of a market commodity with your own money. Some financial advisors would recommend individuals with pension savings to move their money into this financial investment.
However, as it is a high-risk commodity that 75-80% of retail investors lose money on, CFD should only be marketed to experienced investors and those who can afford to lose money. The Financial Conduct Authority (FCA) created rules restricting the marketing, sales and distribution of CFDs to retail customers. Leverage should be limited to 30:1 and 2:1 and customers’ accounts must be closed out when their investment falls down 50% of the margin that is required to keep their accounts open. Customers are provided protection on most trading platforms, guaranteeing they cannot lose money more than what they invested.
The regulating agency also restricted all types of incentives that would encourage trading, and have instructed firms to be straightforward with their customers as to how many of their customer-accounts are losing money.
The FCA stepped in after evidence of firms aggressive CFD mis-selling to the general public, implying that retail customers are purchasing a product that does not suit their needs. It was alleged that some firms sold CFDs with higher leverage, which led to consumers losing their money.
CFD as a high-risk investment
Sometimes, in the hope of getting hefty commissions, brokers and providers either fabricate stories or withhold information when selling products and services. This is especially true for high-risk investments, like CFD trading, where the customer needs to be made aware of the risks of losing all the invested money because of the way the product is structured.
CFD trading is risky because you can lose your money by allowing somebody else to make bets for you. Your investment will go up and down, potentially making you lose more than what you invested because, among other things, you do not own the product you invested in.
Financial mis-selling
There are several different types of mis-selling: CFD, mortgage, self-invested personal pension (SIPP), and payment protection insurance (PPI) mis-selling. However, all these types have one thing in common: the brokers and providers do not disclose information about their products and services honestly so they can gain big commissions from the sales. These are commissions that they cannot get from selling standard insurance or investment packages.
For example, you bought the product or service that a provider coerced you into purchasing, so you now have something that you potentially do not need and is not suitable for you. There is nothing wrong with the product or service per se, but you cannot use it. The seller/agent was not truthful to you. That is what financial mis-selling relates to.
What to do
If the company or broker is still in business, the correct firm to approach would be the Financial Ombudsman Service. Compensation will not be covered if the firm is based overseas and if the investment simply did not perform well. However, if you lost money due to a mis-sold CFD investment, you can approach the Financial Services Compensation Scheme (FSCS) for help. They will investigate your case to see where you were sold the CFDs and what transpired during the transaction.
The claim through FSCS can only happen if the firm is already out of business. Also, FSCS will compensate you if you lost your money following misleading advice from your broker or provider; if they were negligent in managing your investments; and in case of fraud.
Information gathering
Be sure to bring any written proof and important information regarding your case. Make your fact-sharing short but detailed.
File the complaint
Before going to the Ombudsman to file your complaint, contact the provider or financial institution’s complaints desk. They usually take eight days to respond. If they do not get back to you after the eighth day, go to the Financial or Pension Ombudsman, whichever is applicable to your case.
Ask for an investigation
The Ombudsman service will not charge you anything as it is an independent office. If you are not happy with their decision, you can proceed with court proceedings.
Claiming for compensation
There are solicitors who can help you bring your case to court or to FSCS. Before talking to them, though, contact your provider or broker and have them ask their firms if you are entitled to any compensation. If all else fails, go straight to your solicitors so you get properly compensated for mis-sold CFD trading.
If you were mis-sold a CFD and cannot seem to find anyone who can help you, contact the financial mis-selling solicitors at like the Claim Experts.