Warning: Approximately 80% of all CFD traders lose their money. This article explains why, and how many "regulated" platforms operate in ways that may surprise you.
What is a CFD?
By trading in a CFD trading platform you form a contract for difference (CFD). This is a contract between a buyer (you) and a seller (the trading Platform or a third party) that stipulates that the buyer must pay the seller the difference between the current value of an asset and its value at contract time.
What is characteristic of CFDs is that they allow traders an opportunity to profit from price movement without owning the underlying assets. The value of a CFD contract does not consider the asset's underlying value but refers only to the price change between the trade entry and exit.
The important information here is that the CFD contract does not involve any selling or buying of these stocks, forex, commodities or futures but it is a contract with which both parties speculate on the price of these assets. In other words, it is pure gambling.
Regulated CFD Platforms - Are They Really Safe?
Many CFD Platforms are regulated. Probably yours too. This means that they operate under the supervision of a national Stock Market Regulation Authority. The issue with many CFD Platforms is that, despite the fact that they are indeed regulated, they do not disclose the full truth about how they operate to their clients (you).
More specifically, although you have entrusted your money to them in order to trade CFDs, they do not disclose the truth about the parties in the CFD contracts you conclude with them.
What Many Regulated CFD Trading Platforms Actually Do
In a CFD contract there are three parties: The Seller, the Buyer and the Broker who gets a commission out of the selling price. Many regulated CFD Trading Platforms inform you that they are brokers and they gain from your trading earnings. But this is not true!
In fact they are the Market Makers, which means that they are the Buyer and the Broker at the same time! So when you transfer the money to them and you ask them to sell a commodity that you bought (crude oil for example), they do not actually sell it to a third party but to another company of their group.
This means that they keep your money and they pay you if you win out of their pocket. Thus, they earn from your losses and lose from your winnings...
Prohibited Advice by Agents
This is why most national regulations prohibit these regulated trading Platforms to give advice to their clients (you). However, most of these trading platforms are not complying with these regulations!
On the contrary, they use Agents that urge and sometimes convince their clients to:
- Buy certain commodities or make certain placements
- Use leverage in their trading (to lose more quickly their funds)
- Fall for various psychological tactics designed to manipulate you into losing as many funds as quickly as possible
Also, these trading platforms do not provide to their clients adequate information about CFD trading required by the applicable regulations, like information about margin calls and the fact that you can use stop losses and other protective instruments.
This Doesn't Sound Right
The fact is that it is not right at all. If you have lost money trading CFDs and believe you were given negligent advice or were not properly informed of the risks, our experienced legal team can help you recover your funds.
Remember: We work on a NO-WIN, NO-FEE basis, which means you have nothing to lose by exploring your options.