The Australian Securities and Investments Commission (ASIC) is pursuing action against the trading platform eToro, over what it calls ‘volatile’ and ‘high-risk’ trading products. The regulatory body claims eToro’s contract for difference (CFD) offering and related screeining test have breached design and distribution rules, leading to substantial retail investor losses. An interesting development in the ever-evolving landscape of digital trading arenas.
CFDs are inherently risky, allowing participants to speculate on price movements of traditional commodities, stock indices, forex rates and the wildcard of them all, cryptocurrencies. The leveraged nature of these contracts means that an investor can lose more than their initial investment, making it a high-stakes gamble.
The ASIC argues that the screening test undertaken by eToro to manage access to CFDs was inadequate. Their allegation is that there were insufficient barriers to stop unsuitable customers from trading products with high risks. Regulators worry that a perceived laxity in the standards of eToro’s screening test, which could be bypassed by changing answers, offered little meaningful exclusion.
This may seem like a situation more suited to a Wild West film, but it’s the reality currently faced by eToro. Considering the increasing number of ordinary individuals entering these volatile markets, it’s not entirely surprising that regulators are stepping up. It’s supposedly resulted in almost 20,000 of eToro’s clients incurring losses.
As with all high-risk ventures, there are two sides to the argument. Critics argue eToro should have made more effort to exclude customers who lacked an understanding of CFD product risks. Supporters, on the other hand, maintain that individuals should be allowed to take risks as long as they can afford the potential losses.
Coinciding with the controversy, eToro halted trading of four cryptocurrencies in the United States after they were labelled as securities by the Securities and Exchange Commission. Such developments suggest increased scrutiny and regulation in the trading of digital assets.
In conclusion, while the allure of high-risk, high-reward trading products like CFDs may be tempting, investors should practice due diligence and be aware of the potential downsides. Platforms should also exercise stricter investor appropriateness checks. Stronger regulation might even serve as a catalyst for increased investor confidence, making it a potential boon for the industry. The legal dispute between ASIC and eToro will undoubtedly serve as a milestone case for future market regulations and standards in Australia and possibly beyond.
Source: Cointelegraph
