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Australia’s financial watchdog has warned that no prediction markets are currently licensed as financial markets in the country, and that people considering using them are more likely to lose money than make money. The warning was issued through Moneysmart, the financial guidance website operated by the Australian Securities and Investments Commission.
Warning Focuses On Manipulation Risk
ASIC said prediction markets carry risks, including the possibility that users may be betting against other traders with confidential or inside information. The regulator’s warning comes as manipulation concerns around such markets have drawn wider attention, including in a recent Netflix documentary cited in the release.
That documentary referred to several examples of manipulation, including one involving former US congressman George Santos. This week, he was fined US$35,000 by the Commodity Futures Trading Commission after placing a contract on an event he controlled.
ASIC also said Australians should be aware that, because no prediction markets are licensed in Australia, they cannot access the important rights and protections available under Australian financial services law. The regulator directed potential users to the Australian Communications and Media Authority list of blocked gambling websites.
That blocked list currently includes Polymarket.com, which ACMA banned last year for breaching Australia’s Interactive Gambling Act 2001. The list does not include Kalshi, despite the rival platform having a wide range of Australia-related contracts listed at the time of writing, including contracts on sports, election results, GDP, and foreign exchange rates.
ASIC said Australians should be very cautious and avoid dealing with offshore prediction market providers.
ASIC Links Advice To CFD Risks
The prediction market warning follows a similar notice issued by ASIC about Contracts for Difference, or CFDs. The regulator described CFDs as a financial product used to speculate on changes in the price of an underlying asset.
ASIC said a CFD is a type of derivative, meaning its value is based on the value of the underlying asset. Users do not own the underlying asset and have no rights to it.
The watchdog also explained that a CFD is effectively a bet on whether the value of the underlying asset will rise or fall in the future, compared with the value when the contract is opened. In Australia, CFDs are legal but only available over the counter, not on a licensed exchange.
That means the contract is between the investor and the issuer, with both parties agreeing to pay the difference in price of the underlying asset between the opening and closing of the CFD. ASIC said the contract is legally binding.
Retail Investors And Losses
ASIC warned that if the market moves against the investor, the issuer can ask for more money at short notice to keep the CFD position open through a margin call, or can close out the CFD at its current value. The regulator said investors may lose all the money they put in.
It also said CFD contracts are not all the same, since each issuer has its own terms and conditions, and investors rely on the issuer to meet its obligations.
According to ASIC, most CFD investors lose money. Citing ASIC data, the watchdog said at least 68% of retail investors lost money trading CFDs, with losses worsening the more they traded and especially after fees. It added that most retail investors stop trading CFDs within their first year.
ASIC said people should fully understand how CFDs work before investing, and noted that CFD providers must hold an Australian Financial Services licence.
Different Terms, Same Caution
The regulator uses different language when describing the 2 products, referring to betting or bets in relation to prediction markets and trades in relation to CFDs. But in both cases, its message is cautionary: Australians should be aware of the risks, the limits on legal protection, and the possibility of significant losses when engaging with these products.
Source: Inside Asian Gaming
