Professionals

5. Why is the distribution of derivative products with leverage (such as CFDs and forex products) prohibited?

Where leverage is used, the amount of profit or loss may often be greater than the amount the consumer actually invested. The profit or loss can even be a multiple of the amount invested. In other words, the use of leverage can result in the consumer losing a higher amount than he or she invested, even if there is little change in the value of the underlying asset.

Moreover, the use of leverage also means that the client may lose his or her position more quickly. For example, if leverage is set at 5 (that is, the amount actually invested by the consumer – the margin – represents 20% of the position), this means that a movement of 20% in the value of the underlying asset means a loss of the total amount invested. Minor shifts in the market can thus lead to a complete loss of the investment.