ASIC doing more to protect retail investors

By Dale Gillham. Published at Nov 6, 2020, in Investor 101

When COVID-19 hit Australia earlier this year, I don’t think any of us really knew the full extent of what would unfold in 2020.

The country went into lockdown, the stock market crashed and retail investors found themselves with more free time resulting in many turning to the stock market to make money.

In May, ASIC released a report about investor trading during the March volatility and the results were alarming, especially around leveraged trading.

Two weeks ago, ASIC released a product intervention order (20-254MR) to strengthen consumer protections around trading in contracts for difference (CFD).

This order is well overdue and in my opinion a step in the right direction.

While CFD providers have disclosed the risks of trading leveraged products, the reality is that either most retail traders don’t read the disclosures or they ignore them.

As a consequence, many retail traders lose large sums of money due to the leveraged nature of these products. While the ASIC order seeks to limit the amount of leverage a retail trader can take on, it will not stop retail traders from losing money, it will only limit it somewhat, as the majority are not highly educated or experienced in trading the stock market, let alone trading a leveraged product.

That said, I applaud ASIC for its initiatives and encourage it to do more in order to protect retail investors.

Other areas that need ASIC’s attention include high-frequency trading and algorithmic trading that increases the volatility in the market, which is detrimental to retail investors.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online at www.wealthwithin.com.au


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