Australian Securities and Investments Commission (ASIC) has released a new guide that aims to provide retail investors with clear, independent advice on how contracts for difference (CFDs) work and the significant risks that can be involved in CFD trading.
The “Thinking of Trading Contracts for Difference?” guide explains why retail investors should consider trading CFDs only if they have extensive trading experience or are used to trading in volatile market conditions and can afford to lose all of, or more than, the money they put in.
“Our research with CFD traders found that many traders don’t know or don’t appreciate key aspects of how CFDs work, despite the fact that they are actively trading them,” ASIC commissioner Greg Medcraft said. “This guide aims to fill some of these knowledge gaps, especially around the trading risks.” Medcraft said retail investors who use the guide will be able to make more informed decisions as to whether CFD trading is for them. According to ASIC, the guide includes explanations around how CFDs work, including how trading CFDs differs from investing in shares and the questions that a retail investor should ask a provider before they agree to trade in CFDs. It also explains the different CFD provider business models, including differences between over-the-counter and exchange-traded CFDs, and common traps to avoid.
Filed under: CFD News by LearnCFDs.com
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ASIC has turned its attention to over-the-counter contracts for difference (CFDs), and is calling for improved product disclosure to help retail investors understand the highly leveraged derivative products they trade. The corporate regulator released a Consultation Paper, including a draft regulatory guide which proposes an ASIC benchmark-based disclosure model for CFDs. According to the paper, CFD providers will need to provide PDSs and ongoing disclosures that require them to address the benchmarks on an “if not, why not” basis. ASIC’s model will address four aspects impacting investors: ensuring client suitability, disclosing counterparty-risk, stewardship of client monies and practices where issuers make margin calls on clients.
Greg Medcraft, ASIC commissioner, said investors may not necessarily understand the risks of trading CFDs due to product complexity - however the lack of clarity in current disclosure statements are another barrier for investors in understanding key information. “It is crucial this information has everything retail investors need to make an informed decision, including spelling out the very significant risks of CFD investment,” he said. Barry Odes, managing director of Australia and New Zealand, CMC Markets, acknowledges ASIC’s concerns and said the firm recently created an understanding the risks” section of the CMC website to improve investor education. “The objective of this consultation paper is to ensure that all CFD traders and prospective traders have a sound level of understanding of the product and risks associated with trading it regardless of the CFD provider they deal with, which is something we fully support,” he said.
Filed under: CFD News by LearnCFDs.com
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