What Is CFD Trading? Things You Should Know Before Starting CFD Trading

The popularity of trading with CFDs (Contracts for Difference) has been steadily growing lately. However, not all governments approve of such activities on the territory of their countries. It is due to the high risks of capital loss and regulatory organizations’ desire to protect customers. In this article, you will find lists of countries where you can trade CFDs and those where it is prohibited.

CFD Legality

CFD is a financial instrument that allows traders to bet on the rise or fall of security without owning it. The legality of such activities varies from country to country. The decision to authorize trade is made at the state level and regulatory organizations exercise oversight (for example, FCA, CySEC, ESMA, ASIC, etc.). In order for a particular broker to carry out their operation, they should obtain an appropriate certificate.

The list of regions in which CFD trading is allowed is quite extensive. However, many governments are concerned about this activity’s growing popularity and the massive increase in clients. In general, there is a tendency in the world to restrict freedom in this area. It is done to maintain the market balance and ensure consumers’ safety since trading with CFDs is associated with high risks, which not all clients are fully aware of. For example, financial regulators impose leverage limits, enter bans on the use of cryptocurrency instruments, and set restrictions on offerings to retail customers.

Countries That Allow CFD Trading

In most regions, such trade is completely allowed, although some governments impose certain restrictions. The list below is not full as most of the European countries allow CFD trading:

  • Canada;
  • Chile;
  • South Africa;
  • UAE;
  • Israel;
  • Cyprus;
  • Turkey;
  • Portugal;
  • Sweden;
  • Great Britain;
  • Australia;
  • Japan;
  • Germany;
  • Switzerland;
  • France.

Despite a rather extensive list of countries in which trading with CFDs is allowed, not everyone has a clear understanding and definition of this activity at the legislative level. The regulatory framework is often designed in such a way that it is inconvenient and impractical for some brokers to conduct their work in a particular region.

Of course, this list is not permanent and changes from time to time depending on domestic and international events. Particularly London, UK, has always been the center of Forex and CFD trading. However, after Brexit, its influence on the foreign exchange market dropped significantly, and many brokers thought about changing their location. The question of which country and city will be next is still open. Quite possibly, it will be Cyprus or Malta.

Countries That Prohibit CFD Trading

It is logical to assume that countries that were not included in the previous list prohibit CFD trading, but this is not the case. Some regions do not regulate this activity in any way, while there are those where there are no specific restrictions, and the operation of some regulated firms is permitted. So, the list of countries that prohibit contracts for difference entirely is rather short:

  • USA;
  • Brazil;
  • Belgium;
  • Hong Kong;
  • Estonia;
  • Slovakia.

Please note that such restrictions are not based on citizenship but residency, so non-residents can trade CFDs.

Use CFDs Wisely 

Of course, restrictions and prohibitions imposed at the state level should be observed. In particular, even in countries where CFD trading is allowed, brokers are required to set limits on accounts, introduce negative balance protection, warn users about high risks, and more. However, traders, especially beginners, should themselves assess the risks correctly and be prepared (both financially and psychologically) for possible losses. CFD is a rather complex tool that is not suitable for every investor. You need to have enough experience to use it and manage risks skillfully.

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