Finn traded using contracts for difference (CFDs). They are a derivative product which allows an investor to speculate on the change in the value of an underlying asset.
In June 2022, Finn placed a trade on USD/TRY (the value of the US dollar against the Turkish lira). Finn set the stop loss price at TRY16.75. This meant his trade would close, at a loss, if the price fell to that amount.
Finn had expected to make a profit on the trade. His trading strategy was to open a position before Turkish markets opened, and to realise a profit in the following few hours when the price increased after the market opened, as had been the recent trend.
However, Finn lost nearly $1,000 on the trade. Around 90 minutes after Finn opened the trade, it closed because the stop loss Finn had set was triggered.
Finn complained to the trading platform, saying the stop loss had been triggered strangely. The trading platform believed the price movement, a large price spike, was valid and not the result of any error by them with their prices.
The trading platform concluded that the stop loss should have been executed 20 seconds earlier than it had been. The trading platform refunded Finn the price difference, around $160.
Finn was not satisfied with the trading platform’s response and complained to FSCL.
Finn did not accept that the large price movement was valid. Finn had researched the price movement in the underlying market for USD/TRY. There had only been a slight price drop, at the time the trade was executed, smaller than the price movement on the trading platform.
Finn also complained about the trading platform’s spread (the difference between their buy and sell prices). The spread had increased to between 0.30 and 0.40 USD/TRY, which Finn believed was unreasonable and unfair. The spread was usually much smaller.
The trading platform’s position remained unchanged. They believed the price movement, which caused the stop loss to be triggered, was valid.
We concluded that the price movement was valid. The trading platform had verified the price movement with external pricing sources.
The information Finn had from a third-party source also showed that there had been a sudden price drop in the underlying market. The price movement shown in Finn’s information was not as large as the price movement on the trading platform, but this did not mean the trading platform had made an error with their price. The trading platform had disclosed to Finn that they set their own prices, and that their prices may be different to the underlying market price.
We agreed with Finn that the spread was large. However, the trading platform had not done anything wrong. The trading platform set their prices and, in turn, their spreads. Spread levels are not regulated in New Zealand.
Further, it is not unusual for a spread to be wide when a market is volatile and illiquid. Liquidity for the Turkish lira was thin, making it a particularly risky currency to trade.
We concluded that Finn should discontinue his complaint because the trading platform had not breached the terms of their agreement with Finn. He did not respond to our view on his complaint.
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.