The European Union’s top banking and markets regulators warned inexperienced investors that they may lose more money than they expect when trading contracts for difference.
Volatile markets, combined with extra leverage, “can result in rapid changes to your overall investment position,” the European Banking Authority and European Securities and Markets Authority said in a joint statement on the EBA’s website.
The contracts are only appropriate for people who have “extensive experience in trading, in particular during volatile markets, and can afford any losses,” the EBA said.
A contract for difference is an agreement between a buyer and a seller to exchange the difference between the current price of an asset such as shares, currencies or commodities, and its price when the contract is closed.
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