Denmark plans to ban the sale of binary options to retail customers, saying the securities are too complex and risky for non-professional investors.
The move mirrors similar measures under way in other countries, including the U.K. and Austria. Growing numbers of retail investors in Europe are losing money on the products, which are often sold online by companies that disregard investor protection rules, according to the Danish Financial Supervisory Authority.
Denmark flagged the dangers of the complex derivatives already in 2016, when it likened buying the securities to playing the lottery. But so far it’s only advised against them, citing a temporary ban by the European Securities and Markets Authority. From July, companies won’t be allowed to market, distribute or sell the options to retail customers, the FSA said on Friday in a statement.
The U.K. Financial Conduct Authority in December proposed permanent restrictions on the sale of the complex derivatives to retail investors, citing the “inherent risk” of the products and “poor conduct” of the firms that sell them. ESMA’s temporary three-month ban was extended in April to run through June.
Binary options, as the name suggests, have just two outcomes. If the investor is in the money at a given time, the trade will be profitable. If not, the investor makes no money (but bears the cost of entering the trade).