Clampdown on risky bets costs traders £450m

MOre than £450m was wiped off three of Britain’s biggest trading firms yesterday over a plan to ban high-risk betting on markets.

regulators have announced a crackdown on binary options contracts, which allow punters to guess if markets will go up or down.

they are a business staple for listed companies iG Group, cMc Markets and Plus500 – triggering a rush for the exits by panicked investors.

the european Securities and Markets Authority (esma) could ban sales of the options to retail investors, due to fears they are complex products which can trigger huge losses.

Binaries allow gamblers to bet on whether a currency, share index or commodity such as oil will rise or fall over a set time period – sometimes as little as 30 seconds.

if they guess right, they make money – and the bigger the movement, the larger the payout. But if prices move sharply in the wrong direction it can trigger massive losses which far exceed the amount wagered.

Paris-based esma said it has been worried for a while and ‘remains concerned that the risks to investor protection are not sufficiently controlled’.

it is planning to hold a short consultation on the proposals next month.

esma is also considering stiffer rules on contracts for difference, another way of betting on future price changes.

At present, customers are able to magnify their bets by 100 times or more the value of their stake. For example, a client who put £100 down would get to trade with £10,000. it means losses could also be much larger than the amount bet. But esma is planning to rein in these so-called leverage limits, potentially to as little as five-to-one.

it is feared this will also have a major impact on the trading firms. iG said it no longer offers binary trading to new clients.

it called the planned leverage limits ‘disproportionate’. Shares fell 9.3pc or 68p to 665p.

cMc said binaries accounted for just £2.1m of its european revenue during the six months to September 30. But shares fell 12.5pc or 21p to 146.75p – knocking £36m off the family fortune of founder Peter cruddas, 64.

Plus500 said it is waiting for the final esma decision before taking action. Shares fell 10.8pc or 100p to 825p.

the city’s Financial conduct Authority watchdog raised its own concerns about binaries last year, warning it is ‘difficult, if not impossible, for clients to fairly value these investment products’.