CFDs and forex trading are rising in popularity – but are just easy ways to lose money or a profitable way to play the markets?
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Even well-respected investment platforms offer the opportunity for spread betting, CFDS and other ways to speculate with shares, commodities and foreign currencies.
But police and regulators warn that some brokers are offering bogus services and are fraudsters out to grab cash from investors.
What is a CFD?
A CFD is a contract for a difference and are advertised by many reputable online trading platforms.
CFDs allow investors to bet on market movements by staking cash on predicting the bid and offer price in a specific period.
If the strike price (predicted value) is negative, the buyer pays the trader. If the strike is positive, the broker wins and the trader pays out.
Profits and losses can rise or fall with the market.
What are binary options?
Binary options are similar to CFDs but tend to be for fixed losses and returns. The broker makes a call on the final price of a share, currency or market movement and either wins or loses.
Why are CFD and binary options different from other investments?
They are more of a bet than an investment and in both cases, the broker never owns the underlying asset but makes a call on the rise and fall of the value during a specific time period
What are the risks?
Like any other speculative bet, if a broker bets money they cannot afford to lose, they can end up with debt problems
British police are warning that scammers operate online suggesting huge amounts of money can be returned – but many of the success stories are made up.
They claim brokers are asked to send traders money and are then ignored after handing over the cash.
Others demand extra payments to release supposed profits.
Protecting your cash
Not all CFD or binary options traders are fraudsters.
Do not send money to traders advertising through personal web sites or social media – only stake money through a reputable platform.
Traders you can trust generally have a stop mechanism on accounts to stop CFD losses growing out of control.
Traders offering returns that seem too good to be true are more likely to be scammers.
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