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Retail investors warned about high-risk CFDs


The Central Bank headquarters in Dublin

The Central Bank headquarters in Dublin

The Central Bank headquarters in Dublin

RETAIL investors have been warned about the risks of investing in contracts for difference.

The Central Bank produced a report on contracts for difference (CFDs) which estimates that up to 30,000 investors lost money investing in them through Irish-based stockbroking and investment houses.

CFDs were the instruments used by former billionaire Sean Quinn to put money into Anglo Irish Bank, causing him to come financially unstuck.

The Central Bank warned 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 the direction a share price will go in by only putting as little as 10pc of the price of the shares.

If the bet goes wrong the CFD holder will be asked to provide money to cover the losses, known as a margin call.

CFDs have traditionally been popular with Irish investors because, unlike buying an Irish stock outright, investors in CFDs are not liable to stamp duty.

The Central Bank said that around 39,000 retail clients invested in the risky financial instruments between 2013 and 2014 through stockbrokers and investment houses in this country, with 5,000 of them Irish residents.

Around 75pc of these people lost money. This works out at close to 30,000 people.

The average loss was €6,900.

Director of consumer protection at the Central Bank Bernard Sheridan, said: "It is our view that CFDs are unsuitable for investors with a low-risk appetite.

Meanwhile the Central Bank (CB) has published its Strategic Plan for 2016 to 2018.

The plan will see the regulator launch a national credit register to cover loans to individuals and businesses. The first phase will launch next year with a second phase in 2017.

The CB will also implement new EU regulations for the insurance industry known as "Solvency II".

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