On 24 February 2021, Tāne entered into a contract for difference (CFD). A CFD is based on the price of the underlying commodity, in this case, gold, and generates a profit for the trader if the price of that commodity moves in the direction predicted.
Tāne’s trade was a ‘long position’, meaning he would earn a profit if the price of gold had increased by the time the trade was closed.
On 25 February 2021, the price of gold had gone up, so Tāne looked set to make a profit. As such, Tāne decided to set a ‘stop-loss’ on the trade so that if the price of gold dipped below the amount he specified, the trade would automatically be closed. Theoretically, Tāne was unlikely to make a loss because he had set the stop-loss at an amount above his opening price.
The next day, the price of gold suddenly spiked downwards and Tāne’s stop-loss was triggered. Tāne’s trade was closed at the next available market price, which resulted in him incurring a loss of $3,000.
Tāne complained to FSCL.
Tāne couldn’t see the price dip reflected in any of the trading data for gold, so he complained the trading platform had incorrectly closed his trade.
The trading platform said the data they relied on was accurate and they were entitled to close the trade.
We asked the trading platform for the pricing data they had relied on to close Tāne’s trade.
After 2 months of numerous follow ups, the trading platform had not responded to FSCL’s request for information. Though we thought it was unlikely the trading platform had lied about the accuracy of their pricing data, in the absence of any other evidence, we had to rely on Tāne’s version of events.
We issued a preliminary decision upholding Tāne’s complaint and recommending the trading platform reverse the trade so Tāne did not suffer a loss.
The trading platform then proved they had attempted to send FSCL their report twice, but were having technical difficulties. After further delays, the trading platform managed to send FSCL their report, which included the accurate pricing data.
We issued a formal recommendation partially upholding Tāne’s complaint. Given the accuracy of the pricing data, which showed the price dip, we withdrew our finding that the trading platform should reverse Tāne’s trade and resulting loss. However, the trading platform’s delays during the FSCL process had caused Tāne some inconvenience, so we recommended the trading platform pay Tāne $500 compensation to reflect that.
Insights for consumers
Usually trading platforms offer a ‘standard’ stop-loss option and a ‘guaranteed’ stop-loss option, with the latter being more expensive for the trader to put in place.
When a ‘standard’ stop-loss is triggered, the trade will be closed at the next available market price, so there is no guarantee the trader’s loss will be limited to the stop-loss price they set.