CDFs are a form of derivative trading, which enable investors to speculate on the rising or falling prices of fast-moving indices, commodities, shares and treasuries.
Binary options, instead, are an “all or nothing” bet on the outcome of an event, Asic said.
The regulator’s Product intervention: OTC binary options and CFDs is concerned that retail investors have suffered and are likely to suffer from significant detriment of the two instruments.
In Australia, the binary options and CFDs market is growing rapidly, reaching over a million clients in the past two years – 99% of which are retail investors and mostly based offshore.
Licensed issuers held A$2.9bn (£1.5bn, $1.9bn, €1.7bn) of client money between last years and earlier this year, the regulator said.
Asic added that during 2018:
- licensed issuers received gross trading revenue of A$490m from binary options and A$1.5bn from CFDs—which can largely be attributed to a combination of net client losses and fees and costs charged to clients,
- CFD issuers automatically closed out 9.3 million client CFD positions in margin call, and;
- over 41,000 clients’ CFD trading accounts went into negative balance, totalling -A$33m (that is, clients owed money to the CFD issuer).
In 2017, the regulator also underwent a review of this section of the market finding that 80% of clients trading binary options lose money, 72% who trade CFDs lose money, and 63% of clients who trade CFD over currency pairs lose money as well.
Cathie Armour, commissioner at Asic, said: “For many years Asic has taken strong action to protect consumers of binary options and CFDs, using the range of regulatory tools available to us.
“However, we are concerned that consumers continue to suffer significant harm from trading these products.
“A complete ban would prevent retail clients from losing money trading binary options. We believe binary options provide no meaningful investment or economic use, and have product characteristics similar to gambling products.”
Asic’s move follows the one of the Maltese regulator, which restricted the marketing, sale or distribution of CFDs to retail investors on 20 August 2019.