The FMA advises consumers to exercise particular caution in relation to high risk financial products such as “binary options” and “contracts for difference”
The Austrian Financial Market Authority (FMA) advises consumers to exercise particular caution when purchasing high risk financial products. Such products are currently predominantly offers in the form of binary options and contracts for difference (CFD) and are becoming increasingly frequently available. In this context, foreign currency trading in the form of “FX Trading” and “Rolling Spot Forex Contracts” are also being aggressively marketed. The FMA explicitly maintains its stance that such products are highly speculative and complicated, and are therefore not suited – in particular as the sole investment form by private investors – for sustainable investment purposes.
As a rule such risky products are not standardised, with the features of such products varying from one provider to the next, consequently making it difficult to conduct any realistic product comparison. They are nevertheless being advertised via a broad range of a channels (e.g. social media, advertisements) and in many cases without any form of pre-sales advice. The advertising messages also falsely suggest that there is little to no risk involved in such products.
However, the reality is that such products constitute high risk forward transactions, in which the investor effectively bets on the price of the underlying asset, form example a stock or a currency, is either above or below a defined threshold e.g. the price at the time of the conclusion of the trade, at a pre-determined point in time. In the event that the prediction of the investor is wrong, then the investor in the case of a “binary option” loses his/her entire invested capital. In the case of a contract for difference (CFD) the investor in comparable circumstances may even be required to make a subsequent additional payment, that may be a multiple of the amount of the invested capital.
“The past has demonstrated that investors have frequently not been aware of the risks of such products, and have also sustained considerable losses. We would therefore strongly advise private investors against investing in such investments without having been informed about the risks entailed and having received sufficient pre-sales advice. Ultimately, if something sounds too good to be true, then it probably isn’t true,” commented the FMA’s Executive Board Members, Helmut Ettl and Klaus Kumpfmüller.
In addition the FMA also advises that the provision of investment services in conjunction with financial products, for example binary options and contracts for difference in Austria, is exclusively permitted for licenced investment services providers, i.e. credit institutions and investment firms. However, such investment services may also be offered under the freedom of establishment and freedom to provide services by investment service provided in order EEA Member States. Such companies are not directly supervised by the FMA, but by the respective competent supervisory authority in their home Member State.
The FMA explicitly advises against becoming a customer of a company that is neither authorised by a government authority nor is a supervised entity. The risk of becoming the victim of criminal acts, in particular fraud or breach of trust, are particularly high in this case. Any form of legal enforcement or enforcement of claims for damages sustained may subsequently prove to be particularly difficult or even impossible.
Finally the FMA recommends that all investors, prior to the conclusion of securities transactions, to inform themselves fully about the opportunities and risks associated with such transactions as well as to establish whether a provider is in fact authorised for such transactions, and not to conduct any transactions, for which there is no clearly understandable and transparent information available.
Further information on this topic can be found on the FMA’s website at https://www.fma.gv.at/en/fma-thematic-focuses/fma-focus-on-binary-options-and-cfds/ (the publication is currently available in German only).
In addition, the following warning and press release issued by the European Securities and Markets Authority (ESMA) also contain further information:
Journalists may address further enquiries to:
Mr. Tiemon Kiesenhofer, MBA
+43/(0)676/882 49 610