From what I understand, the SEC and CFTC do not allow CFDs to be traded in the USA because they consider them to be "high risk" for the following reasons (though I don't know if all of this information is accurate, and
some of these reasons seem bogus,
especially numbers two, five and six, seeing as how these same drawbacks apply to
other financial instruments that
can be traded in the U.S.):
- CFDs are unregulated over-the-counter products that can be traded by any two willing parties on any marketplace that allows them and are not listed on any regulated exchange.
- Traders are only required to contribute a small portion of the money involved in each trade and can borrow the rest from the trading platform—sometimes as much as 30 times the amount invested; and borrowing money (leveraging) to invest is always a risky move.
- Unlike most other investments, you can lose much more money than you started with, meaning you actually owe the CFD provider money.
- You don't own the underlying asset. All you own is the contract between you and the CFD provider. Therefore, you can't benefit from the capital growth of the underlying asset over the long term.
- Just like their underlying assets, CFDs are affected by market conditions and can swing wildly back and forth without notice in volatile markets.
- Depending on the trading volume of the CFD, there may a buyer or seller available when you want to close out your position.
