30,000 investors lost money on CFDs in 2013/2014

A Central Bank inspection has discovered that 75 per cent of investors who bet on the stock market via a contracts for difference (CFD) product in 2013 and 2014 made a loss on the deal.

The regulator is now warning consumers that they need to be fully aware of the high-risk and complex nature of CFDs before making investment decisions.

CFDs allow investors to bet on a share price by only putting up an initial deposit of as little as 10 per cent of the price of the stock. Investors are asked by a broker to deposit more cash or securities to cover any losses, known as a margin call. They can also have agreements with their CFD providers to buy the underlying shares at a later date. CFDs have traditionally been popular with Irish investors because unlike buying an Irish stock outright, investors in CFDs are not liable to stamp duty.

Mr Bernard Sheridan, director of consumer protection, said: "It is our view that CFDs are unsuitable for investors with a low-risk appetite.This is due to the volatile nature of the CFD market, coupled with the potential for a consumer to lose more than the initial investment. Consumers need to be made fully aware of the high-risk and complex nature of CFDs before making investment decisions," he said.

The inspection covered 39,000 retail CFD clients who invested in CFDs with Irish-based investment and stockbroking firms during 2013 and 2014. Almost 5,000 of these investors were resident in Ireland.

Some 75 per cent of clients made a loss, the inspection found, of an average €6,900.

The inspection also found that criteria used for assessing the appropriateness of CFDs for investors varied among firms; some firms failed to maintain up-to-date records; and marketing material did not always adequately outline the risks of CFDs.