EU warning on derivatives

City A.M. Reporter
EUROPEAN Union regulators warned investors yesterday of the dangers of buying contracts for difference (CFDs), a type of derivative that offers potentially high returns.

CFDs are derivatives contracts that bet on price moves of an asset, such as a company’s shares, without having to own the underlying asset.

“These products appear to promise investors substantial returns at a low cost but may ultimately cost them far more than they may have intended or could afford to lose,” the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) said in a joint statement.

“If investors do not understand what’s on offer, they should not trade,” the regulators said.