The power to settle financial complaints.
The power to settle financial complaints.
This section of our website describes how we approach complaints made by consumers about spread-betting and contracts for difference (CFDs).
We can look at complaints involving spread-betting because it is a type of CFD. This means it differs from other forms of betting by being recognised as an investment under the Financial Services and Markets Act 2000.
CFDs and spread-bets both offer consumers the potential of very high returns. But they also carry a far higher level of risk than traditional gambling. This is because the consumer can lose more than their original stake.
Consumers are usually required to have between 5% and 10% of the value of their open positions on deposit with the business. This is known as "margin". The precise amount of margin required by the business can vary depending on the volatility of the underlying market.
We sometimes need to handle a case with urgency, if the dispute relates to a matter where the business is about to start court proceedings – to reclaim money from the consumer.
The following sections provide more detailed information about our approach when we investigate complaints about spread-betting and CFDs:
These types of investments are usually made without the consumer receiving investment advice from the business, although we occasionally see cases where a business gave investment advice to a consumer trading in CFDs.
Whether or not advice was given, we will consider whether the business ensured that the consumer was aware of the high level of risk involved. We will look at the available evidence to assess:
If we are satisfied that the consumer understood the risks involved, and had an appetite for those risks, we are unlikely to uphold a complaint that the investment was inappropriate.
Where the business provided the consumer with investment advice, we will also consider whether that advice was suitable. There is more information about our approach to complaints about suitability in the section of our website on assessing the suitability of investments.
In both spread-betting and CFD trading, the business generally sets the prices consumers can trade at. Consumers sometimes complain that they have been disadvantaged, because the prices have been manipulated in the business’s favour.
In these cases, we examine the evidence to see how the business arrived at its quotes. We are unlikely to uphold the complaint, if we find that the business’s prices were related to the relevant market price:
We sometimes see cases where either the business or the consumer says that a trade was carried out at the wrong price. In these cases, we will look at whether the business was entitled to cancel or re-price trades when a mistake had been made.
If we find that the terms and conditions said that the business could cancel or amend a trade, we will take into account the Unfair Terms in Consumer Contracts Regulations 1999, which say that:
A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.
We usually say that the trade should be cancelled or amended, if we are satisfied that:
But even if a price was wrong, we are unlikely to agree that it should be cancelled or amended if we are satisfied that the trade was made in good faith by the consumer – in other words, that they could not reasonably have known that the price was wrong at the time of the trade.
Mr F was a regular trader of CFDs, and opened a "sell" contract on the business’s gold market at a price of $1050/oz, hoping to see the price fall. The following week, he saw that the price quoted by the business had fallen to under $100, and immediately closed the position by taking out a "buy" contract of the same size. This created a large profit for Mr F.
The next day, the business told Mr F that it was cancelling his "buy" contract, because the price it had been quoting had been wrong. The actual market price at the time had been above $1000/oz. The business referred to a clause in its terms and conditions that said it could cancel a trade if the price had been "manifestly" wrong. Mr F complained.
We said that the business did not have to pay Mr F the money he considered he was entitled to, because it should have been clear to him at the time he placed the trade that the price was wrong.
Consumers often ask for trades to be carried out once a price reaches a certain target level. These are known as "limit" or "stop loss" orders.
Disputes sometimes arise when prices "spike" – where there is a sudden sharp move in the price that is quickly reversed – and consumers and businesses have different views about whether or not a trade should have been carried out during the "spike".
When we decide whether what happened was fair in these cases, we take all the available evidence into account, including:
For example, if we are persuaded that a significant volume of legitimate trading took place in the underlying market during the "spike", we are likely to say that a trade executed by the business at that time should remain – even if the "spike" was very short lived.
We also see complaints about stop loss orders carried out below the price that the consumer specified. This sometimes happens when a market "gapped through" the consumer’s target price – in other words, moved very quickly from above the target to a point significantly below it.
In these cases, we will examine the account terms and conditions – and any other product literature that was sent to the consumer – to see what was said about how stop loss orders would be executed.
We are unlikely to uphold the complaint, if we are satisfied that the business made it clear that it could not always guarantee that stop loss orders would be carried out at the level the consumer asked for.
Consumers who carry out CFD trading and spread-betting often find that their total liability exceeds the sum they have staked. Where businesses consider that market movements have led to a particular account exposing them to too much risk, they can try to reduce this by asking the consumer to provide more "margin" (in other words, to deposit more money to the account).
Where a consumer does not provide more margin, the business may close some of their open positions. We sometimes see cases where the consumer complains that:
We also see cases where the business decided to allow a position to remain open, and the consumer later complains that it should have been closed.
In all these circumstances, we examine the account terms and conditions to see what they say about the steps the business can take to manage the consumer’s position. For example, some terms and conditions say how long the business might wait before acting.
It is unlikely that we would uphold a complaint about a business closing open positions, if we are satisfied that the business was entitled to close out trades and acted reasonably in doing so.
We don’t apply the benefit of hindsight when we decide complaints. So we are likely to reach the same conclusion in a case like this – even if the business’s exposure would have been reduced later anyway, because prices moved back in the consumer’s favour.
Mr H held a number of open bets on the business’s sterling vs US dollar index. A few days after the last of these had been opened, the business asked Mr H to provide more margin in order to keep the positions open. Mr H decided against putting more money forward, and chose to close the positions. This caused him to realise a significant loss.
Mr H complained, saying that even as the business was asking him to provide more margin, the prices were moving back in his favour. He said that the business should have waited.
On investigation, we were satisfied that the account terms and condition made it clear on what basis margin could be requested – and the circumstances in which this could take place.
We also listened to recordings of the phone calls made when Mr H initially opened his positions. During these calls the same message was repeated to him.
So we did not uphold his complaint.
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This is part of our online technical resource which sets out our general approach to complaints about a wide range of financial products and issues. We would like your feedback on how helpful you found it. Please also use the feedback form below to tell us about anything you think we could clarify or explain better.