Investors in contracts for difference, a financial derivative, offered by Irish-based brokerages have lost almost 202 million euros ($217 million) over the past two years, according to regulators.
Three quarters of retail investors in CFDs, which allow leveraged investors bet on shares, commodities or other financial assets, lost money in 2013 and 2014, Ireland's central bank said in a statement Monday. Of the 39,000 customers of Irish-based brokerages or firms operating in the country on a branch basis, 34,000 weren’t resident in Ireland, it said.
“Customers need to be made fully aware of the high risk and complex nature of CFDs before making investment decisions,” said Bernard Sheridan, director of consumer protection at the bank, adding that these are sometimes not sufficiently highlighted by marketing material.
CFDs allow investors bet on a share price by putting up an initial deposit of as little as 10 percent of the price of the stock. They are asked by a broker to deposit more cash or securities to cover any losses, known as a margin call. CFDs grabbed headlines in Ireland during the financial when it emerged that the family former billionaire Sean Quinn had built up a 25 percent stake in now-defunct Anglo Irish Bank Corp. through the instruments.
Quinn and his family lost about 3.2 billion euros investing in Anglo Irish Bank Corp. He was declared bankrupt in 2012 and exited insolvency in January. One reason for the continued popularity of CFDs in Ireland may lie in their tax treatment. While a 1 percent levy is applied on regular stock trades, it doesn’t apply to CFDs.