Category: Brokers

ASIC Binary Options Ban Comes Into Effect

The binary options ban that had been anticipated for Australia now for more than 12 months has finally kicked into effect. Following substantial losses from the Australian retail market, The Australian Securities and Investments Commission (ASIC) has taken the decision to ban the issuance and distribution of Binary options to retail traders in Australia.

This has been officially announced with immediate effect and the order will be in place for 18 months, until ASIC can review the impact and make a long term decision thereafter. This ban impacts retail customers who do not have at least 2.5 million in assets to buy or trade these complex financial products.

The Australian retail market had suffered stggering net losses of up to $490 million in 2018 from binary options which then reduced dramatically to $6.7 million in 2019. This reduction was likely caused in part to a warning issued by ASIC on the instrument in April 2019 (and following on from the wider retail binary options ban in Europe.

The Massive Losses In Binary Options Market Were Falling, But The Number Impacted Staggering

It has been found that an overwhelming 80% of retail clients have lost money on trading binary options between 2017 and 2018 and that this is not a reasonable investment product for retail traders. The losses have been attributed in part to the way Binary products are set up and the ASIC commissioner Armour has come out with a statement :

“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”.

Binary options have been likened to gambling which is not an ideal comparison for those seeking trading products. We have found during some additional research, the following characteristics of trading Binary options to contribute towards the negativity and in support of the subsequent ban:

  • The payoff structure, which features an ‘all or nothing’ result. The trader has a 50% chance of losing their entire investment amount, but with different payouts possible based on the perceived likelihood of the result.
  • The duration of the contract. The average time frame for a binary options contract is just 6 minutes, but more frequently we are seeing contracts as extreme as 60 seconds. How one can expect to make a real trading decision on a 60 second timeframe is beyond the realms of most even avid retail clients.
  • The negative expected returns. The payoff for some Binary options are lower than the initial trade, causing losses.

Client protection is one of the primary goals of any forex regulator and ASIC, as one of the Tier 1 regulators is pushing forward with these additional measures. After issuing a warning around Binary options in April 2019, the size of the markets have as mentioned reduced which is a positive sign. ASIC still warns retail clients against using unauthorised services in foreign jurisdictions, and hope that this ban will help protect retail traders further from unnecessary risk. Australia based traders should use one of the broker regulated locally. We have done some research on the best brokers for Australia here. This withstanding, some experts have warned that the ban could backfire tempting inexperienced retail customers into the arms of unlicensed or offshore brokers causing more harm.

ASIC aligns With ESMA across wider instruments : Retail protection again at the forefront

We can look to other regulators and jurisdictions to help answer some of those concerns. The European markets for example had banned binary options all the way back in 2018 when the retail market went through a pretty big shake up. It is within the ASIC’s interest to align with their European counterparts and ensure that the high risk Binary option products are banned in most of the worldwide markets to protect not only Australian clients, but all retail clients respectively.  

ESMA (European Securities and Marketing Authority) have had these restrictions in place since 2018 and in my view, it is high time the Australian markets have caught up on these client protection directives. Find more information from ASIC directly here

Plus500 News : Activity & Revenue Jumps Markedly

Plus500 Trading Update News

In recent news, Plus500, an increasingly popular online CFD broker has reported an exceptional rise in revenue for the first three months of 2021. Plus500 are one of a few publicly traded CFD brokers that can be looked at to gauge activity in the market and are listed on LSE, under the ticker :PLUS.

The trading update released has a reported revenue of $203.2 million, which in comparison to the last quarter of 2020, is up by a massive 121%. This is a record jump in revenue for the broker. 

The dramatic growth in revenue can be linked to the direct increase of the number of active clients which can be attributed in no small part to the cryptocurrency and stock trading interest generated in the retail market in the early part of this year. The number of clients has increased from 215,305 in the last quarter of 2020 to 269,743 in the first quarter of 2021, which reflects almost a 25% growth in traders.

Plus500 have also onboarded a staggering amount of new clients during the same time period. They have opened new accounts for 89,406 new clients in comparison to just 50,314 clients in Q4 2020.

The EBITDA for the company has also increased substantially in Q1; up to 121.7 million in comparison to just 19.9 million during Q4 of 2020. Q1 2021 has been particularly positive in all aspects for Plus500, and goes to show that retail trading appetite for CFD trading is very much alive and kicking.

The Plus500 share : buyback program and market activity supporting growth

Plus500 are continuing with their share buyback program, which is an active sign of belief in the company internally which resonates out into the market. The CFD broker has continued to buy back its’ own shares from the market over the past years with more than $88million bought back in 2020, and a further $29.2 million already initiated during Q1 2021.

The market, and retail traders in general should feel secure in knowing that Plus500 is very well capitalised, and with more than $675 million of cash on the balance sheet as of 31st March this is a broker that can look forward.

Plus500 have been active sponsors of the Spanish football club Atlético de Madrid and the company have renewed their sponsorship of the upcoming season of 2021 to 2022.

CEO of Plus500, David Zruia has expressed his pride in the company’s success and has released this statement in the latest announcement. “Plus500 delivered an excellent performance during Q1 2021, building on the positive momentum achieved in 2020.  This performance has been driven by the strength and agility of our technology and its ability to respond rapidly to market developments, news events and customer requirements.”

He also added “Our vision is to enable simplified, universal access to financial markets, as we start to evolve from a technology company solely focused on CFDs to a multi-asset fintech group over time.  We aim to achieve this by accessing multiple growth opportunities, through organic investment in our technology and targeted acquisitions.  We are already making progress in delivering this vision, as highlighted by Plus500’s excellent performance so far this year.  With this progress in mind, and with a market environment that continues to provide compelling trading opportunities for our customers, we remain confident about the outlook for business”