The Australian Securities and Investments Commission (ASIC) intends to ban the sale of binary options according to today’s press release. It is also looking to restrict the sale of Contracts for Difference (CFD) to retail clients. In its new industry report, the regulator says the two exotic investment products cost customers almost $2bn a year. There are 65 firms offering one or both of the products licensed in Australia, including the London-listed IG Markets and CMC Markets, US giant FXCM and home-grown outfit Pepperstone.
In a consultation paper issued today, ASCI said it was concerned that retail investors had suffered, and were likely in the future to suffer, significant detriment from binary options and CFDs.
The Australian industry at a glance
Licensed issuers of these products in Australia conducted 675 million trades with clients in 2018 and earlier this ear held $2.9 billion of client money for trading. According to the ASIC report, around 1 million Australian retail investors hold deposits with providers of binary options and CFDs.
ASIC found that during 2018, the gross trading revenue for binary options in Australia was $490 million and for CFDs $1.5 billion. According to ASCI that revenue could “largely be attributed to a combination of net client losses and fees and costs charged to clients”.
80 percent of Australian investors who traded
ASIC report Consumer harm from OTC binary options and CFDsbinary options lost money while 72 per cent of clients who traded CFDs lost their money.
Millions for marketing and client acquisition
Despite their exotic nature, the binary options and CFDs are heavily promoted through a network of introducers (IB) and through internet advertising. ASIC senior executive leader of market supervision Calissa Aldridge said issuers had spent $131 million on advertising while providers paid a further $280 million to introducers.
More than $400 million was invested in the acquisition of new customer victims. These funds are taken from the deposits of existing customer victims and misappropriated for this purpose.
Over the same time, CFD issuers automatically closed out 9.3 million client position after a margin call and over 41,000 clients’ CFD trading accounts went into a negative balance.
This moral picture around the rip-off of small investors applies not only to Australia but also to Europe, North America,