The Australian Securities and Investments Commission on Thursday disclosed that it will closely observe trading tools such as Contracts for Difference (CFDs) when it takes over the supervision of financial markets later this year.

Contracts for Difference (CFDs) is a trading tool used for investors to speculate on share price movements without receiving ownership of the shares. CDFs may be arranged between two parties to exchange data on an entry price and exit price of a share.

The commission has issued a document warning investors of a fall out using CDFs, a motion that is purely against the Australian Securities Exchange.

The ASX implemented the CFDs and is featured on their website to promote any product that increases the turnover rate on the exchange.

ASIC deputy chair Belinda Gibson said the corporate regulator will officially release a discussion paper on the warnings and risks behind trading in CFDs.

“Contracts for Difference are products largely sold to the retail end of the sector and we just want to make sure that retail investors fully understand the nature of them and some of the risks associated with them when they take them up,” Ms. Gibson said.

She said that CFDs lack transparency and knowledge as to who is the counter party.

ASIC will start consultations on the rules of the new exchange in September and may be finalized by the end of the year.