The Portuguese player has bragged to his 59.7 million Twitter followers about a sponsorship agreement he signed with Cyprus-based Exness, a high-risk trading firm which allows investors to risk losing more than 500 times their original stake – many multiples of what some regulators say is appropriate for retail investors, according to a Bloomberg news report.
Exness offers products called contracts for difference (CFD), where gamblers bet on whether prices of shares, commodities and other assets will rise or fall.
CFDs allow investors to make highly leveraged trades that can provide outsized gains on the way up – but also can result in deep, swift losses in the event of a downturn.
Users can leverage their deposits, meaning they can, in theory, win or lose up to £500 ($676, €568) for every £1 bet.
For an example of how such a trade can work, imagine investing £50 on an exchange-traded fund (ETF) contract. If you take a CFD up on the 500-times leverage it offers, the notional value of your investment increases to £25,000.
Then, if the ETF gains 2%, the ‘investor’ makes £500. But if it declines 2%, the initial sum is lost and the investor owes £450.
“Happy with my new partnership with @EXNESS,” the tweet read, followed by a link to the firm’s own Twitter feed.
In the press release accompanying the news, the Real Madrid striker praised the business for “offering the highest quality of services but also in fostering a socially conscious culture”.
It’s not the first time Ronaldo has endorsed a financial brokerage firm dealing with CFDs, having signed a deal with online foreign exchange and CFD brokerage platform Xtrade in March 2016.
Real Madrid, the football team Ronaldo plays for, has also partnered with the firm.
Prohibited in the US
Critics of the practice, including financial market regulators, say investors often don’t grasp the potential downside associated with such bets, leaving them vulnerable to huge losses.
The contracts, which allow investors to bet on the direction of stocks, bonds, currencies and commodities without buying the underlying assets, aren’t traded on public exchanges and are largely prohibited for retail customers in the US.
Regulators in Spain, where Real Madrid is one of the most supported football teams, found that CFD traders lose money 82% of the time.
“CFDs, called ‘a volatile form of gambling’ by an Irish judge in 2014, make up one of the last bastions of opaque, lightly regulated financial speculation in Europe,” journalist Donal Griffin wrote for Bloomberg.
However, Exness said in a statement that arrangements between brokerages and top-tier football clubs are common and that the firm includes appropriate warnings in its customer marketing.
The firm said that it offers what it calls “negative balance protection”, which ensures that customers can’t lose more money than they have in their account. It also said it conducts “appropriateness” tests to determine how much leverage to offer.
“Exness complies fully with the new and evolving regulations in the jurisdictions that it operates and have adjusted our leverage policy in line with recent guidelines,” the company said.
“We take the financial security of our clients very seriously.”