Piper Alderman and Omni Bridgeway are preparing a class action on behalf of up to 20,000 Australian investors who claim to have collectively lost hundreds of millions of dollars trading contracts for difference (CFDs).
The claim will allege that a UK-backed financial services firm, IG Markets, consistently marketed complex CFDs to inexperienced investors and facilitated those investors to trade in CFDs without applying adequate checks and balances.
Earlier this year, the corporate regulator confirmed the extension of its product intervention order imposing conditions on the issue and distribution of CFDs for five more years. The order originally came into effect on 29 March 2021, and is believed to have strengthened protections for inexperienced investors after earlier reviews by the regulator found that 72 per cent of retail clients who traded CFDs lost money.
According to ASIC, the average loss of these investors between 2016 and 2021 was approximately $9,000 a year, in circumstances where close to 70 per cent of clients earned an annual income of $80,000 or less. The regulator’s data also suggests that total losses by investors with IG Markets exceed $800 million.
The law firm and legal finance team confirmed that the proposed class action will be registered in the Federal Court, following further investigation.
Commenting on the proceedings, Piper Alderman partner, Martin del Gallego, said there is now “overwhelming evidence that highly leverage CFDs should never have been marketed to everyday Australian investors who had little or no experience in trading such complex products”.
“CFDs are little more than a form of gambling which has left tens of thousands of Australians out of pocket,” Mr del Gallego said.
“Our proposed class action will seek to recover these losses for investors who should never have been exposed to trading in such complex, high-risk products.”
Earlier this year, CHOICE called for the federal government to implement an outright ban of CFDs in Australia.
In countries like the United States, CFD trading is banned for retail investors due its highly speculative nature.
Locally, Australian regulators have recently escalated their own management of the risks that CFDs can present to everyday investors.
