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Large losses following volatile market conditions

Mei complained about contracts for difference, which are commonly known as CFDs. CFDs allow an investor to speculate on the change in the value of an underlying asset, such as shares.

CFDs are a leveraged product. This means the consumer only has to deposit part of the value of the trade. The remaining part of the trade is leverage. Leverage allows the consumer to magnify their returns, but losses are also magnified. The higher the leverage, the higher the risk to the consumer.

Mei first opened her trading account in 2014. She had suffered losses on trades before, but in early 2022 she suffered large losses which she complained about to the trading platform.

On 24 February 2022, Mei had ten open trades on US shares. The trading platform emailed Mei to inform her that her trading account was approaching the close-out level. This was the amount of funds needed to support Mei’s open trades. The trading platform explained that if the close-out level was reached, Mei’s trades may be closed. The trading platform suggested that Mei add funds to her account or close some of her trades, but she did not do this.

On 25 February 2022 (NZ time), there was a fall in the US market when it opened. The market fell on the news that Russian forces had entered Ukraine.

That day, two of Mei’s trades closed. The stop loss prices Mei had set on the trades had been reached and the trades were automatically closed by the trading platform.

At the same time, the trading platform closed Mei’s other eight trades because she did not have enough funds in her account to keep the trades open. Mei’s total losses were over $151,000, leaving her trading account over $9,500 in debt.

When Mei complained to the trading platform about her losses, they offered to waive the debt she owed them. Mei did not accept their offer and she asked FSCL to investigate her complaint.


Mei complained that the trading platform had acted negligently and had breached the Financial Markets Conduct Act 2013 (the Act) by not disclosing material information about risk. Mei said the trading platform had not disclosed the harmful effects of low margins (the amount the consumer needs to deposit to open a trade) and that their margin levels were not suitable for retail clients. The trading platform were aware of the risks because a related company had participated in the Australian Securities and Investments Commission’s (ASIC) consultation in 2019 about CFDs and over-the-counter binary options.

Mei also complained that the trading platform had acted negligently because the leverage they offered was not suitable for retail clients. The trading platform knew the high leverage they offered retail clients was detrimental, and that their clients would suffer financial losses as a result. The trading platform knew this because ASIC had proposed introducing leverage limits.

Mei wanted the trading platform to compensate the losses she suffered on 25 February 2022 (over $151,000), plus interest. Mei also wanted the trading platform to pay her $5,000, the maximum amount FSCL can award for non-financial loss, such as stress.

The trading platform said they were not liable for Mei’s losses. She was responsible for managing her account, including monitoring market events and managing her exposure. Despite an evident market decline on 24 February 2022, Mei chose not to add funds to her trading account or close any trades.

The trading platform also said they had disclosed the high risks of trading CFD products and they did not accept that they had breached the Act.


We concluded that the trading platform were not liable for Mei’s losses.

The trading platform had clearly disclosed the risks of trading. This included disclosing that their products were high risk, that losses may exceed the money Mei had deposited, and that trades may be automatically closed if the trading account balance fell below the close-out level.

Mei knew, or should have known, from the information the trading platform gave her that CFDs are high risk products and that she may lose more than the funds she had deposited into her account.

We were not persuaded that the trading platform had acted negligently because of the leverage they had offered Mei. The trading platform were under no obligation to reduce their leverage levels to match those prescribed (or proposed) in jurisdictions outside of New Zealand.


Mei discontinued her complaint when we gave her our views.

We suggested that Mei should accept the trading platform’s offer to waive the debt on her trading account. Mei did not respond to us so the trading platform did not have to waive the debt.

Insights for consumers

CFDs are complex financial products that carry a high level of risk, meaning they are not a suitable investment for many consumers.

One of the risks is that prices can fluctuate rapidly. This can lead to trades closing, at a loss to the consumer, because the stop loss price is reached or because the consumer does not have enough funds in their trading account to keep their trades open.