Australia renews retail ban on binary options for ten more years

Rick Steves

Since the ban on binary options offerings targeting retail investors came into effect, 68% of wholesale clients lost money trading binary options in that period as the product intervention order does not apply to them.

The Australian Securities and Investments Commission (ASIC) has renewed its ban on binary options until 1 October 2031, thus ending any doubt the regulator would reconsider its position on the matter ten years later.

Binary options are over-the-counter derivatives that allow clients to speculate on the occurrence or non-occurrence of a specified event in a defined timeframe. This can include an event related to movements in the price of a financial product, a market index or an economic event (such as central bank interest rate decisions).

Binary options are harmful

It was in 3 May 2021 that the product intervention order banning the issue and distribution of binary options to retail clients came into effect.

The decision was successful in preventing retail clients from losing money trading binary options in Australia, the financial watchdog stated, adding that the ban extension will ensure protections remain in line with those in force in comparable markets overseas.

ASIC Deputy Chair Karen Chester said: “Binary options are harmful, high-risk financial products resulting in millions of dollars in losses for retail investors before our ban. Extending our binary options ban until 2031 ensures this important protection for retail investors will continue.”

Using data from five licensed binary option issuers, ASIC released a report summarizing the impact of the order introduced in May 2021. In the 13 months prior, ASIC found that retail clients incurred significant aggregate net losses trading binary options:

  • 74–77% of active retail clients lost money trading binary options
  • retail client accounts made net losses of $14 million in aggregate
  • loss-making retail client accounts made net losses totalling $15.7 million, while profit-making retail client accounts only made net profits of $1.7 million.

The ban has been effective in reducing the risk of significant detriment to retail clients resulting from binary options, according to the regulator, who reminds the industry that retail clients have not made any losses (or profits) from trading binary options with licensed issuers since the product intervention order took effect.

By comparison, 68% of wholesale clients lost money trading binary options in that period as the product intervention order does not apply to them.

80% of retail clients lost money trading binary options

ASIC found that, between 2017 and 2019, 80% of retail clients lost money trading binary options. In addition, this product is likely to result in cumulative losses to retail clients over time because of the following product characteristics:

  • an ‘all or nothing’ payoff structure, where one of the two possible outcomes for a binary option contract is that the retail client loses their entire investment
  • short contract duration (e.g. the average contract duration of binary options traded with one provider was less than six minutes)
    negative expected returns (i.e. the present value of the expected payoff for a binary option contract is lower than the initial investment).

ASIC’s actions to address concerns about binary options have included enforcement action to address misconduct, public warning notices and other statements, surveillance projects and thematic reviews, stronger regulations, and extensive retail client education campaigns and guidance for binary option issuers.

Read this next

Digital Assets

Kraken acquires TradeStation’s cryptocurrency business

Kraken, the second-largest U.S.-based cryptocurrency exchange, has acquired the cryptocurrency arm of online brokerage TradeStation.

Retail FX

The Funded Trader is back? Traders report account closures

Prop trading firm The Funded Trader has updated its website with a few banners, nearly three weeks after it ceased all operations, with claims for a relaunch in the near future. However, there was no official statement on the relaunch on its website, Discord channel, or social media accounts yet.

Executive Moves

NAGA lures former Tickmill compliance exec Loukia Matsia

NAGA Group, a provider of brokerage services, cryptocurrency platform NAGAX and neo-banking app NAGA Pay, appointed Loukia Matsia as their new Head of Compliance and Anti-Money Laundering (AML).

blockdag

Explore 2024’s Top Cryptocurrencies: BlockDAG Leads With 30,000x ROI Potential, Among Surge Predictions For Bitcoin And Ethereum

Navigating the vast ocean of cryptocurrencies might feel overwhelming for many investors, whether seasoned or newbies.

Tech and Fundamental, Technical Analysis

EURUSD Technical Analysis Report 18 April, 2024

EURUSD currency pair can be expected to fall further toward the next support level 1.0600 (which reversed the price earlier this month).

Digital Assets

Binance ordered to remove Changpeng Zhao to get Dubai license

Binance, the world’s largest cryptocurrency exchange, has obtained a Virtual Asset Service Provider (VASP) license in Dubai.

Crypto Insider

Evolution and current state of global crypto adoption

Every four years, the crypto world gets hyped for the Bitcoin halving. Past halvings, like the one of May 2020, saw a massive increase in BTC transactions, which was driven by growing adoption and community involvement.

Digital Assets

Binance set to re-enter India with $2 million fine settlement

Binance, the world’s largest cryptocurrency exchange, is preparing to re-enter the Indian market after agreeing to pay a $2 million fine, according to a report by the Economic Times.

Chainwire

Over 1,000 Builders, Partners, Investors and Enthusiasts Gather at Inaugural Global Event to Celebrate Sui

Last week in Paris, over 1,000 blockchain enthusiasts from 65 countries gathered at the inaugural Sui Basecamp during Paris Blockchain Week. This milestone event showcased major announcements and drew a global community, highlighting Sui’s impactful strides in blockchain technology.

<