ASIC bans Binary Options sale to retail clients

The Australian Securities and Investments Commission (ASIC) has just announced its product intervention order banning the issue and distribution of binary options to Australian retail clients.

The ban takes effect on 3rd May 2021.

The Australian watchdog said it found that binary options cause significant financial damage to retail clients in the official announcement.

Reviews in 2017 and 2019 conducted by the regulator show that 80% of retail clients lost money trading binary options. ASIC pointed that that one factor that contributes to clients’ loss is the ‘all or nothing’ payoff structure of binary options where one of the two possible outcomes is that the retail client will lose their entire investment amount. The regulator also attributes the large percentage of losses among retail clients to the short duration of the contracts which on average is less than six minutes and the negative expected returns because the present value of the expected payoff for such a contract is lower than the initial investment.


ASIC Commissioner Cathie Armour said:

Cathie Armour, ASIC

Cathie Armour
Source: LinkedIn

Binary options’ product characteristics make them incompatible with investment or risk management use by retail clients. ASIC’s product intervention order will protect retail investors from these harmful products at a time of heightened vulnerability.

According to the Commission, retail clients’ net losses from trading binary options are estimated at around $490 million in 2018. Since then, the market in Australia has reduced significantly in size after ASIC issued a warning providing unlicensed or unauthorised services to clients located in several foreign jurisdictions in April 2019. In 2019, the estimated client net losses are over $6.7 million.

The binary options ban follows an intervention order by ASIC placing conditions on the distribution of CFDs to retail clients from 29 March 2021. The intervention order on CFDs will be in effect for 18 months after which time it may be extended or made permanent.

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