After Binary Options, Aussie Regulator Curbs Risky CFDs

The Australian Securities and Investments Commission or ASIC employed its product intervention power to ban binary options last year. After this step, Australia’s national corporate regulator is implementing a measure against contracts for difference or CFDs.


We find it important for our followers to read this report related to binary options in Australia. We believe it can help them understand the country’s official position regarding this financial activity. 


According to the news posted online by the Australian business-focused, compact daily newspaper The Australian Financial Review, binary options is a risky leveraged product.


Traders are provided with an all-or-nothing payoff, depending on an asset’s price at a specific date in the future. Binary options did not sit well with the ASIC, which understood it as a leveraged speculative derivative product.


Hence, the Australian Government’s independent commission utilized its product intervention power last year to prohibit the sale of binary options to retail investors. After this measure, the ASIC is restricting CFDs which permit clients to speculate on an underlying asset’s value change without taking a position on the asset itself.


Moreover, CFDs allow debt to be taken on to increase the potential returns’ size and the losses. They are traded in over-the-counter or OTC markets rather than centralized exchanges.


The assets connected to CFDs consist of commodities, foreign exchange rates, individual equities, stock market indices, and even cryptocurrencies. CFD proponents defend that they offer exposure to some asset classes that retail investors may not otherwise be able to access or afford.


They also remarked that CFDs could play an appropriate role in an investment portfolio to amplify returns or hedge risks. On the other hand, Federal Court of Australia Justice Jonathan Barry Rashleigh Beach pointed out that many retail investors have lost their funds trading CFDs due to excessive leverage.


He described one CFD case as a classic example of unsophisticated retail investors looking for “financial heroin hits.” Furthermore, Cathie Armour referred to higher volumes in trading CFDs by retail investors during the coronavirus or COVID-19 pandemic.


After several years of surveillance, the ASIC commissioner remarked that they discovered that the amount of money that retail investors were losing in those products was quite significant.


We think the Australian Securities and Investments Commission or ASIC is merely doing its important job of safeguarding the Australian public against risky financial products. We comprehended its prohibition of binary options last year.


We also understand its position against CFDs. We learned that the ASIC’s restrictions standardize margin close-out arrangements, diminish CFD leverage, launch protections around negative account balances, and ban CFD providers from giving certain inducements to retail clients.


We hope that the ASIC can re-introduce binary options in the near future in a way that interested customers can engage in them legally and without suffering massive financial losses.

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