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Question of The Day: Is CFD Trading Illegal? 

Read Time:3 Minute, 23 Second

So for all those who are new to the CFD industry and have no clue what it is, how it works, whether it’s illegal or not and mainly what are CFDs. Don’t worry I’ve got you! I’ll go through the basics of CFD trading and what CFDs are and how they work. So firstly CFDs are known as contracts for differences and by their name they are contracts that are traded between a CFD provider and a trader. This contract is mainly an agreement which is between the investor and the CFD provider to exchange the difference in the value of a financial product between the time that the contract is open and the contract closes. Now, these financial products can be securities or derivatives and these products are not owned by anyone. Now the CFD investor never actually owns any asset, it is instead the revenue based on the price changes of the asset. 

Now there are numerous advantages of trading CFDs. Let’s go over a few. Trading CFDs allow the trader to access the underlying asset at a considerably lower cost than buying the asset outright. Furthermore, the trader has the ease of execution and they have the ability to go long or short. Moreover, there are few disadvantages as well which include a decrease in the investors initial position which is mainly reduced by the size of the spread upon entering the CFD. Now in addition to these disadvantages this industry is highly complex and there are a few risks which mainly include weak industry regulation. 

You might wonder why? The CFD industry is not regulated by any authority, it is a free flowing industry which is governed by price fluctuations. There are no financial institutions or government authorities overseeing this industry thereby there is no regulation which proves to be harmful for the traders. If there is no regulation the CFD providers can easily scam and manipulate traders. Moreover, there is a lack of liquidity and there is a constant need to maintain an adequate margin. These risks are the main reason that this industry is considered to be illegal in countries such as the United states and Hong Kong.

Is CFD Trading really illegal?

Now let’s go over whether CFD trading is actually illegal or is it legally allowed all across the globe. While many countries have been open to the CFD industry there are a few that have banned CFD trade for their citizens. There are many countries that accept this form of trading mainly because of the advantages and because the industry is growing, expanding and developing. 

However, countries such as Hong Kong and the United States have completely banned CFD trading for their citizens. The citizens are not allowed to trade and engage in CFD trading at all. The main reason is the nature of the market. The CFD market is a highly dynamic and complex industry which mainly operates without any regulations therefore there are higher chances of getting scammed. In order to protect the customers these two countries have banned trading of CFD’s. Thereby, trading CFD’s in Hong Kong and the United States is completely illegal and banned. 

Fundstrace as A Resource

Now you might be wondering where I’ve gotten all this information from, well, let me introduce you to Fundstrace. 

Fundstrace is a website made solely for all new traders and CFD investors. I went and found all this information on the website. In addition to being an excellent source of information, Fundstrace specialises in all types of CFD scams and risks and is known to help customers report scams and recover money. 

Do check out the website and if you ever feel like anyone is scamming you or your broker is being shady, report it, and this company will help you. Fundstrace will help you identify whether the broker is a scam, and if the broker is, then they’ll help you report and alert the appropriate authorities to recover your funds if you lost any. 

 

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