ASIC Confirms to Ban the Sale of Binary Options to Retail Clients

The Australian Securities & Investments Commission (ASIC) today published an announcement regarding new rules for binary options trading, banning the issue and distribution of binary options to retail clients, effective 3 May 2021.

The decision was made after the Australian regulator found that binary options have resulted in and are likely to result in significant detriment to retail clients. 

ASIC reviews in 2017 and 2019 found that approximately 80% of retail clients lost money trading binary options. According to the watchdog, binary options are likely to result in cumulative losses to retail clients over time because of their product characteristics:

· the ‘all or nothing’ payoff structure, where one of the two possible outcomes for a binary option contract is that the retail client will lose their entire investment amount;

· short contract duration (the average contract duration of binary options traded with one provider was less than six minutes); and

· negative expected returns (that is, the present value of the expected payoff for a binary option contract is lower than the initial investment).

ASIC Commissioner Cathie Armour said, ‘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.

ASIC estimates that retail clients incurred a net loss of approximately $490 million from trading binary options in 2018 and a net loss of more than $6.7 million is estimated in 2019.

ASIC’s binary options ban follows the commencement on 29 March 2021 of ASIC’s product intervention order​ imposing conditions on contracts for difference offered to retail clients. The maximum CFD leverage available to retail clients will range from 30:1 to a 2:1, depending on the underlying asset class.