Central Bank warns on ‘speculative’ CFD investments

The Central Bank has joined a European regulatory body in warning on the risks to small investors of "speculative" financial derivatives such as contracts for difference (CFDs), the risky investments that came to prominence during the financial crisis.

The European Securities and Markets Authority said this week: “These are complex products and although it may be difficult for the majority of retail investors to understand the risks involved, they are widely advertised to the retail mass market by a number of firms, often via online platforms.”

Timely warning

On Thursday, the Central Bank's director of markets supervision, Gareth Murphy, said: "This is a timely and important warning from the European Securities and Markets Authority about products, such as CFDs, which are available to retail investors where there is ample evidence that the probability of loss for the consumer is very high."

The Irish regulator previously said in November, following an inspection of the CFD market in Ireland, that investors in these products need to be fully aware of the high risk and complex nature of the instruments.

Seán Quinn

CFDs attracted considerable attention in Ireland after the family of the country's then richest man Seán Quinn built up a clandestine 28 per cent stake in Anglo Irish Bank between 2006 and 2008 using the products. These allow investors take a leveraged bet on assets from shares to oil prices.

Mr Quinn said in court in February 2014 that, all told, his family lost €3.2 billion on its leveraged investment in Anglo Irish, which was nationalised in 2009 and put into liquidation four years later.