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 https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-064mr-asic-bans-the-sale-of-binary-options-to-retail-clients/

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”

China Economic Data Continues To Shine Bright

China, has for some time now been the world’s second largest economy, behind the US, and the economic data is well watched. The so called ‘factory of the World’ is a core part of the global economy and as a big exporter, a good indicator of global consumption. 

The world then, is watching how the economy of China will recover after the worst period of the Covid 19 pandemic wondering what might be in store for their own economies.

Three Decades of Record Growth

The past 30 years in China have heralded an age of astonishing growth, with average annualised GDP growth of more than 9%, but it will come as no surprise that this year will be different. 

During Q1 and Q2 of 2020, when the world was largely locked down, China returned economic data not seen in the Asian powerhouse for many a year. With Q1 GDP returns contracting by 6,8%, followed by a mini rebound of 3.2%, Q3 was expected to deliver a stronger return. European consumers by and large were enjoying summer, with many fewer restrictions than earlier in the year. 

Q3 Bounce But A Miss From Forecasts

It should come as no surprise that in the past 3 months, China has seen a strong growth of 4.9% in comparison to the same period in 2019. Despite this rebound, it does however reflect a ‘miss’ from market expectations which were forecasting 5.3%. 

China’s GDP (gross domestic product) at the start of the year suffered a massive hit with the closure of factories and manufacturing plants, but now their recovery has accelerated, they are leading the GDP recovery worldwide.

The data reported by China has come under scrutiny and the accuracy of the economic data has been put under the spotlight as usual.

Economic Data Driven By Exports But China Shows Rounded Strength

Exports were the main driver of the results, hitting 9.9% growth in September vs 2019 figures. The growth in GDP was also supported by infrastructure and real estate investment. Industrial output gathered momentum MOM from April through to September, going from 3.9% to 6.9% over the past 6 months.

The economy of China is clearly one that still has great potential for further growth in the coming periods ahead. According to IMF predictions, the only global economy expected to grow during 2020 is in fact China. 

With an expected growth of 1.9% even during one of the darkest years in memory for most economies around the world, it seems as though there is really nothing that can stop China from reaching new highs. 

Yuan holding strength

The Chinese Yuan (RMB) over recent months has continued to strengthen against the USD, as the differences in economic pictures become clearer. There is also the continued US election uncertainty that is presenting presenting questions around the US currency.

Despite the economic differences with other regions, other major currencies are faring slightly better YTD, although that trend is now very much back in reverse.  

EUR has struggled against RMB over the past month and there may be an opportunity opening up on the charts.

Unemployment Stats – Volatility in GBP & USD

Unemployment in the UK is now at its highest level in more than 3 years. The worldwide pandemic continues to impact all countries indiscriminately. Why then is their a wider gender imbalance poking through the latest statistics?

From National To Local Warning Systems

The UK government has begun the next phase of imposing tighter local restrictions. This is being done via the introduction of a three tier system for local lock-down and is aimed to simplify things across the board.  This system will categorise different parts of the UK with different levels to help combat the spread of Covid-19 at a more local level.     

Covid-19 as we know, has already had a significant and direct impact on businesses and jobs. The national enforced lockdown in previous months caused otherwise healthy businesses to close and subsequently bought with it a swathe of job losses. 

With the looming local restrictions coming into place, the knock on effect of the tighter constraints will further exacerbate the UK unemployment crisis but this time on a regional basis. This raises many questions.

UK Unemployment stats bleak and seemingly hitting certain segments of society hardest

With the unemployment rate rising from 4.1% to 4.5% in the last quarter, approximately 1.5 million people find themselves out of work. Redundancy levels have hit a high not seen since 2009 during the aftermath of the financial crisis. With 227,000 redundancies between the months of June and August 2020, UK earning stability is in a rather precarious position.

Young people in the age group from 16-24 have been greatly impacted, moreso than other age groups. Some of the main sectors that have shouldered the burden have been travel, hospitality and leisure, all stumbling under the greater social distancing restrictions. This has had a knock on effect on the amount of people claiming work related benefits with that number increasing by more than 1 million since March 2020.  

There has also been a disparity between unemployment levels between men and women with the number of men being employed increased by 22,000 whilst the number of women has decreased by 34,000 (ONS).  There could be many different reasons for this difference, but the onus of unpaid care, which is disproportionately placed on women could account for the stark difference in numbers.

Time will tell, as children begin to return to school after the longest summer break in memory, whether this disparity is closed. It seems that even viruses have the potential to cause societal imbalances. 

Worse Before It Gets Better?      

It seems as though this will continue unabaited for a while at least. Unemployment is expected to rise further with the changes to the government’s furlough scheme.  The furlough scheme has been subsidising wages up to 80% to discourage employers making job cuts. This has saved countless jobs.

This version of the scheme will be phased out and replaced with a new scheme which is expected to begin in November 2020. The new scheme is going to be less generous than the previous furlough scheme.

The beginning of November therefore could see a further sharp increase in unemployment and job losses as companies’ struggle to foot the bill for the staff with a reduced level of support.   

With the introduction of the new tier system in the UK, if these tighter restrictions are then required in specific areas, one can expect the local, and wider UK unemployment figures to follow the trend seen elsewhere. 

It appears that the worst is still not over, and that the UK is heading into a deeper phase of unemployment with a long and hard road to full recovery. There has been a similar trend of unemployment worldwide as the Covid-19 pandemic continues to ravage the worldwide economic scene. 

As inroads are being made towards a vaccine, what of the currency impacts?

All is not lost, further inroads are made towards a vaccine at a record pace. Despite reductions, there is still, by and large record amounts of support being provided by governments around the globe.

If the unemployment figures and economic statistics start to vary significantly between regions, you can expect to see some significant volatility moving into the related currency pairs. 

GBP is in a very precarious period at the moment and is certainly fair to say there is volatility on the cards. With the Brexit deadline looming, and the two sides no closer it seems to an agreement, unemployment statistics like those seen above will be the last thing the government will want to see. 

USD is going through the usual pre-election wobbles, as traders seemingly keep their cards a little tighter to their chests. Volatility can be expected here especially as we also enter the next earnings round. 

2020 truly is looking like a year for the history books, with a little fortune shining on us, it may yet end with a silver lining if we can pick the right side of the volatility line.

Hong Kong launches Hang Seng Tech Index

The new share index named The Hang Seng Tech Index was launched recently, and officially went live last Monday. It is home to some of Asia’s major tech firms such as Alibaba, JD.com and Tencent.

The top 30 tech companies located in Hong Kong will be listed, making a trade into the regions’ brightest tech stars that much easier.

With the current uncertainty surrounding Chinese tech firms within the US, the most dire example of this being that of Huawei, and more recently TikTok, many Chinese and Hong Kong located firms are exploring different listing options. By choosing to access International capital via listings on China and Hong Kong indexes, the tech giants of Asia are now shunning US stock market listings. This will allow local companies access to foreign capital without the intrusion from the US.

The Hang Seng Tech Index is more specialised and hopes to move away from the Hang Seng Index which is dominated by more traditional banking, and energy firms etc. The Hang Seng Tech Index will focus on larger tech companies that have their hands in e-commerce, fintech, and any other online related companies.

Big Asian IPOs to come

The Ant Group, a fintech company responsible for Alipay, which is the affiliate arm to the very successful Alibaba will use the Hong Kong and Shanghai indexes for its initial public offering and then moving onto the Hang Seng Tech Index. The IPO of Ant Group being offered exclusively within the Asian markets shows China’s caution with the US. Tensions between the two have increased recently with the closure of consulates in both Chengdu and Texas. 

The Hang Seng Tech Index aims to rival the US NASDAQ, similar to China’s Star market and with its recent release, it should make waves among the worldwide trading scene.

With the continued confidence and growth behind tech stocks globally, the prized tech giants of Hong Kong definitely make this one index to keep an eye on.

Is it 2021 stock market recovery already? Are investors being realistic or optimistic?

Have we woken up to the stock market in 2021 with a full economic recovery well under way and a Coronavirus vaccine being administered to the many?

With a shifted focus on the global recovery from the Coronavirus pandemic, the post Memorial Day weekend markets has been strong and has us asking the question if investors are already looking at 2021 markets and building this in to stocks today.

Starting the post bank holiday weekend with all 3 key U.S. indexes up alongside those of the UK and most of Asia investor sentiment is continuing down a bullish path.

The Dow is fairing best of the US indexes making gains of more than 2 % and time of writing and this just seems a far cry away from the current economic data we are looking at.

Stock market love. 1+1 = love
Are investors falling head over heels and ignoring the signs?

The current economic data is still gloomy. Unemployment is at 14.7%, which is the worst since the Great Depression and almost 20 million jobs in the US have been lost due to the pandemic from the low levels experienced prior. Will these jobs return as industry kicks into gear?

There is a broadly similar pattern worldwide but the investor sentiment is taking every positive in the current market conditions and running with it so we may still be in 2020 but stock markets are very much already in 2021.

Strategists have linked the strength of the markets this week to investors looking at the ‘inevitable’ global recovery in 2021, but are they jumping the gun, and being too optimistic of the current global situation and ignoring the signs?

With so many of the variables still vastly unknown and consumer sentiment still heavily dampened, we may be moving too far into bullish territory for our liking with even the 2021 picture hazy at this point in time.

Global Stocks Moving on up – FTSE has best day in months

The key London index of top 100 firms closed 4.29% up or almost 250 points on a day where investor sentiment reached the best level in months.

With economies around the world re-opening (even in this tentative phase), traders have taken been taking the opportunity to enjoy some positivity amidst the pandemic and pushed markets up on a busy Monday trading.

Supplementing the easing of restrictions, we have also seen positive indications coming from Moderna surrounding their vaccine candidate that has pushed their share price up more than 26% today at the time of writing and some rumblings from the Fed that they have more weaponry at their disposal to support the Worlds’ largest economy if they need it.

Markets are thoroughly enjoying every piece of good news at the moment and the reactions and volatility seen during the COVID-19 pandemic have been at levels we have not seen for many a year.

This columnist feels it is safe to say, knuckle down for a bumpy ride, this is one roller-coaster that is not yet close to letting you off.

Digital Yuan Could Shake Up US Dollar Dominance

As the discussions get more and more fractious between the Worlds two largest economies, China are wisely making some real moves to steal a march on their US counterparts with the launch of their digital Yuan or as it is formally known DC/EP.

It is no secret that China have been trying to make inroads into USD supremacy for years but the currency juggernaut of global trade is so deeply embedded within all financial systems that it has been near impossible to usurp the Dollar with fiat. It now absolutely makes sense that China would want to make their move into the digital currency sphere with their National currency digital equivalent.

Digital Yuan to shake up USD dominance?
Digital Currency Shake Up coming?

Digital Yuan is not a ‘Bitcoin-type’ cryptocurrency

We need to note that DC/EP is not to be used in the same way as Cryptocurrencies such as Bitcoin for speculative or investment purposes but as a transaction currency that will be bad news also for all those Libra fans out there who were expecting Facebook to be the master of digital currency.

China will not be alone in launching a national Cryptocurrency. There are many other nations with plans to float their own online currencies but by being the first of the big guns to the table should definitely give China an advantage in taking some market share with their Digital Yuan. Add to the fact that China is the largest global exporter and it would make sense that they will be looking for trading partners to utilise their digital currency in transactions and moving away from some dollar denominated agreements.

The infrastructure for digital payments in China is not new. AliPay, WePay and others have already paved the way with local China transactions growing from a total $956million in 2017 to $1.6trillion in 2019 and an estimated 20% growth again in 2020. This effectively doubles the digital payment transactions in 3 years with $2trillion in estimated transactions set for this year.

The Chinese state also has a vast number of employees in the public sector and we would imagine that making these transactions with digital Yuan will be one of the first steps made to integrate the currency into the hands and devices of the local populous and simultaneously reduce their own costs to handle these transactions.

This puts China in the rather unique position of being able to test their digital Yuan with sufficient volume locally to ensure it is perfected before the other superpowers even get started.

Bitcoin to boom through 2020

Oliver Isaacs has come out with some very strong words on the potential for Bitcoin to go wild for the rest of 2019 and start 2020 above all time highs. Isaacs is of the belief that the global economic uncertainty surrounding US-China, alongside wider unease in more mainstream markets is pushing sentiment towards Bitcoin becoming a ‘safehaven’.

“I believe bitcoin has the potential to hit $25,000 by the end of 2019 or early 2020. There are multiple drivers behind the recent resurgence. There are geopolitical, technological, and regulatory drivers. The net effect of the trade war between the U.S. and China has led to a sudden interest in bitcoin as a hedge on investments.”

BTC $25000 in 2020

Crypto Analyst Oliver Isaacs thinks yes

The wider adoption of cryptocurrencies and Bitcoin as payment methods in general in more mainstream retail outlets has also been mooted as a reason for the upward spike.

Our view is that sentiment is definitely on the upside since the 2018 losses but that it will likely take a little longer than 6 months for BTC to crash through it’s all time highs and a little more regulatory support before this happens. Time will tell.

ESMA Effect – Forex Brokers Struggling in 2019

ESMA Effect

CMC Markets announce a profit drop of 88% – what does this mean for the wider market?

The ESMA effect on brokers is starting to become more apparent. With profit warnings having come from some of the forex industries big players recently it is evident that ESMA is having an impact on the brokers but what is the underlying impact it is having on traders? Are we to believe what traders becoming less exposed to volatility or is the low volatility seen over the past 12 months an extenuating circumstance that is making us all come to the wrong conclusions?

With longterm impacts yet to be known, the short-term doesnt look too good for investors in trading firms. CMC markets lost more than 35% revenue YOY, 88% of profits and their CFO as a result. IG and Plus500 have seen their shares drop more than 10% following the announcement from CMC so it seems like the industry is feeling the bite.

Where do the brokers and traders go from here? Stocks, cryptocurrencies, ETFs? It may be we see more of a pullback but we are of the mind that the pace of positivity may quicken towards the back end of 2019.