Following huge losses by retail investors, Australian regulators have proposed curbs on the country’s $1.3 billion market in binary options and derivatives that are seen as high-risk transactions. Other countries in Europe and North America have already banned such transactions.
Here is an excerpt from a report published by Reuters:
The global crackdown on high-stakes financial betting by amateur traders has already hurt earnings of trading platforms IG Group Plus500 , CMC Markets , and Interactive Brokers Group Inc , all of which have a big presence in Australia.
“ASIC is concerned that retail investors have suffered, and are likely in future to suffer, significant detriment from binary options and contracts for difference (CFDs),” it said in a statement. CFDs allow traders to bet on financial asset prices without holding the asset.
The regulator issued a consultation paper outlining plans to ban all sales of binary options to retail customers, which it likened to gambling products.
Binary options are over the counter (OTC) derivatives that allow clients to make “all-or-nothing” bets on specific events in a specific timeframe, such as a rise in the gold price within a 30 second window. According to ASIC, issuers of such products generated gross trading revenue of A$2 billion in 2018, of which 25% were from binary options and the balance from CFDs. “We estimate that retail client losses from trading binary options were at least $490 million in 2018,” the paper said.
“A complete ban would prevent retail clients from losing money trading binary options,” ASIC Commissioner Cathie Armour said in a statement. Under its proposal, retail sales of CFDs would have leverage limits and rules to improve pricing transparency.
In recent years, regulators in Europe and North America have moved to ban or limit the issue and distribution of binary options to retail clients, and some have introduced leverage limits on CFDs.