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The European Securities and Markets Authority (ESMA) decides upon production interventions for binary options and CFDs

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The European Securities and Markets Authority (ESMA) today announced its decision to prohibit the distribution of binary options to retail investors and to heavily restrict the distribution of contracts for difference (CFDs) to retail investors. It is thereby reacting to the frequent and high losses sustained by retail investors, who have invested in such products. The Austrian Financial Market Authority (FMA), which is a member with voting rights of the decision-making committee of the ESMA, spoke in favour of this measure, and welcomes it. “Binary options and contracts for difference are not sustainable forms of financial investments, but are high-risk bets on financial events. This resolution allows us to effectively deploy the new options at our disposal for effectively protecting investors throughout Europe,” remarked the FMA’s Executive Board members, Helmut Ettl and Klaus Kumpfmüller. “Promises of large profits to be made from financial product always mean that there also a risk of a high loss. When investing savings, we recommend retail investors, to take advice from professional advisors in banks or in licenced financial services providers.”

The FMA has been warning about the high risks involved with binary options and CFDs on its website for a long time. In the past, the ESMA also referred to the highly speculative nature of such instruments, and also warned retail investors in particular about the risks involved in such an investment. Following the entry into force on 3 January 2018 of the Markets in Financial Instruments Regulation (MiFIR), ESMA now possesses the legal means to restrict or even prohibit the distribution of risky financial products to retail investors. The measure that has been taken will be valid for three months from its entry into force, and thereafter may also be extended if required.

Link to ESMA’s publication about the measure:

Link to the FMA thematic focus about binary options and CFDs:

Binary options: a bet on a binary yes/no decision. If a predefined event occurs, then the purchaser receives a defined amount, otherwise the purchased option expires with no value. Indices, share, currency pairs or even commodities may be potentially considered as underlying assets, with speculation occurring solely on the basis of whether the price falls or rises at a fixed point in time. Online offerings of binary options are frequently designed in such a way that the clients will always lose out.

Contracts for difference (CFDs): A highly speculative financial product in which the buyer speculates on the change in price of the underlying asset, such as a share, a commodity a currency or an index. If the price falls, then the client is obliged upon payment falling due to make a payment in the amount of the difference between the agreed forward price and the currently valid price on the contract’s settlement date. The leverage effect may cause losses to be incurred that far exceed the amount of the capital invested.


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