Why is CFD trading illegal?

Contracts for Difference (CFDs) have faced controversy due to their unregulated nature as over-the-counter (OTC) products. Unlike traditional financial instruments traded on regulated exchanges, CFDs are not subject to stringent oversight, raising concerns about investor protection.

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One major reason for the illegality of CFDs in certain jurisdictions, particularly in the USA, stems from the risks associated with their use of leverage. Leverage, a practice that allows traders to increase their market exposure with borrowed funds, can magnify both profits and losses.

American regulators have expressed significant concerns about the potential for large losses resulting from the use of leverage in CFD trading. These fears have contributed to the banning of CFDs in the United States, with many investors seeking access to these products through offshore brokers.

However, despite the risks and legal restrictions, some US citizens continue to invest in CFDs through unauthorized channels. These investors are drawn to the potential for high returns offered by CFD trading, albeit with significant risks.