The Australian Securities and Investments Commission (ASIC) has taken legal action against trading platform eToro, raising concerns about the potential harm its contract for difference (CFD) product could inflict on investors. CFDs are leveraged derivative contracts that allow customers to speculate on the price movements of equities, commodities, stock market indices, and digital assets.
eToro, an early adopter in the cryptocurrency market, introduced trading services with Bitcoin (BTC) in 2013 through CFDs. Over time, it expanded its offerings to include Ethereum (ETH), Cardano (ADA), Bitcoin Cash (BCH), Litecoin (LTC), and other cryptocurrencies.
The Australian watchdog announced that it has commenced legal proceedings in the Federal Court against eToro, raising concerns about the adequacy of testing its CFD product before making it available to users. The focus of the case lies on the appropriateness of eToro’s target market and the screening test used to determine whether a retail client fell within the target market for the CFD product.
The ASIC further claims that the financial product is highly dangerous and volatile, criticizing the initial trial as “wholly inadequate” in assessing whether a retail client fits the target market. The regulator alleges that eToro’s conduct led to a significant number of retail clients being exposed to the CFD product, which was not consistent with their investment objectives, financial situation, and needs, consequently posing a significant risk of consumer harm.
Based on ASIC’s estimations, approximately 20,000 eToro customers incurred losses between October 5, 2021, and June 14, 2023, due to trading CFDs on the platform. The lawsuit reflects the regulator’s concerns about the potential impact of such products on retail investors and seeks to address issues related to customer protection and risk management.
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