The regulator described CFDs as "complex financial instruments which allow you to speculate on the price of an asset".
The Financial Conduct Authority (FCA) said cryptocurrency CFDs are "an extremely high-risk, speculative investment" and that only experienced investors "with sophisticated knowledge of financial markets" who "fully understand the risks associated with CFDs and cryptocurrencies" should consider investing in them.
But the leverage multiplies the impact of price changes on both profits and losses. Investors can lose money very quickly, significantly more than the amount originally invested in some cases.
The FCA also said it was concerned that investors may not be given the full picture on the price of cryptocurrencies that determine the value of the CFDs. However, the FCA noted that those protections will not compensate retail clients for any losses from trading, just from an insolvency of the broker. They're vulnerable to sharp changes in price due to unexpected events or changes in market sentiment. The value of some cryptocurrencies has fallen by more than 30% in a single day.
The Financial Conduct Authority (FCA) said it would take over regulating firms that offer binary options, that can lure investors by advertising on social media under an illusion of respectability, from the Gambling Commission on January 3. It also places you at risk of losing more than your initial investment, meaning you could end up owing money to the firm.
The FCA said its data suggests a majority of consumers lose money when making bets and that consumers find it hard to make sustained profits over a series of bets. There is a greater risk you will not receive a fair and accurate price for the underlying cryptocurrency when trading.
Check the FCA Register of financial services firms - if the firm doesn't appear, you shouldn't trade with that firm, transfer funds, or provide any banking details.