ASIC warns retail investors against playing volatile markets

6 May 2020

The Australian Securities and Investments Commission (ASIC) has fired a shot over the bows of retail investors who it says have been chasing quick profits by playing the markets and losing.

The regulator said that trading activity in contracts for difference (CFDs) had increased significantly during the COVID-19 period of heightened volatility and that the leverage inherent in CFDs magnified investment exposure and sensitivity to market volatility.

It said that in the week 16 March to 22 March retail clients’ net losses from trading CFDs were $234 million for a sample of just 12 CFD providers.

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ASIC said an analysis of markets during the COVID-19 period had revealed a substantial increase in retail activity across the securities market, as well as greater exposure to risk.

“We found that some retail investors are engaging in short term trading strategies unsuccessfully attempting to time price trends. Trading frequency has increased rapidly, as has the number of different securities traded per day, and the duration for holding the securities has significantly decreased: indicating a concerning increase in short-term and ‘day-trading’ activity,” it said.

The regulator cautioned that ‘even market professionals find it hard to ‘time’ the market in a turbulent environment, and the risk of significant losses is a regular challenge.

“For retail investors to attempt the same is particularly dangerous, and likely to lead to heavy losses – losses that could not happen at a worse time for many families,” it said. “Retail investors chasing quick profits by playing the market over the short term have traditionally performed poorly – in good times and bad - even in relatively stable, less volatile market conditions.”

In addition to the increased trading, there was a sharp increase in the number of new retail investors to the market – up by a factor of 3.4 times – as well as a marked increase in the number of reactivated dormant accounts.

“The higher probability and impact of unpredictable news and events in offshore markets overnight only magnifies the danger. ASIC is therefore particularly concerned by the significant increase in retail investors’ trading in complex, often high-risk investment products. These include highly-geared exchange traded products, but also contracts for difference,” it said.




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Does ASIC just want to control what people do with their own money?

ASIC's role is to enforce and regulate company and financial services laws to protect Australian consumers, investors and creditors. Where is the bit about offering investment advice?

You reap what you sow ASIC. You've made it too hard for anyone to get professional advice, so now these people get their advice from a few Google articles and act on that. Good luck trying to extend your dictatorship into the personal investor market.

Exactly. Same issue with insurance. More consumers are turning to dodgy direct junk insurance thanks to regulatory persecution of insurance advice. As a result, consumers are much worse off.

Market downturns are the best time to invest !

ASIC needs to take some responsibility for this. Thousands of advisers have been forced out of the profession and many of those remaining are shedding clients or closing their books directly as a consequence of the insane level of red-tape forced upon us by ASIC. So why would anyone be surprised that consumers end up falling prey to high risk trading scheme operators and miscellaneous scam artists? ASIC's own research showed there is a strong demand for financial advice. If it is not satisfied, then this is the consequence.

Funny that...I have tried to Google ASIC Financial Advice , their AFSL and their FSG and I cant seem to find anything !
ASIC are now providing general advice as well as controlling what fees advisers are allowed to charge.
Yet another indication that ASIC are stepping outside their intended role whilst the Govt just roll along blindly accepting it because of fear.
Its also another indication that ASIC can pretty much just do exactly as they wish following the kicking Kenneth Hayne gave them at the RC.
The solution from the Govt.....give them buckets of money with no restrictions...easy.

wait - it is the financial planners fault - right?!

yes, somehow they will pin it on us. and blame us, as we are now "reluctant to give advice" that's why there is a consumer detriment.

choice will come out and say it and the minister will follow through with a new rule, you have to give advice even if you don't want to and be liable for whether you give advice or Not.

If ASIC is so concerned about clients financial welfare, what research have they done to show the rapid rise in gambling? That includes TAB, Lotto, horse races and I believe they still do dog races. (I think the Casinos are still shut) I am sure that the increase in gambling and the similar increase in alcohol consumption will have a detrimental affect on a client's (family) financial long term welfare, more than trying to time the market.
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My thinking is investing in shares and etfs builds a portfolio for the future. If you make a profit of 200% invest 500.00 return 1500.00. Sell 500 invest That 500 in something else make same profit
So we have 2 invests at this stage so you top it weekly or monthly and it compound interest building your portfolio up.

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