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ASIC cracks down on risky online investments: What you need to know

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ASIC's new report looks at how it's protecting Aussie investors.

The Australian Securities and Investments Commission (ASIC) is on the move, addressing the surge of new retail investors in the online trading space. It's a trend that's picked up steam since the pandemic, with about 20% of Aussie investors starting their investment journey during this period according to a new report from the regulator.

ASIC's latest report highlights the actions it's taken over the past year to keep an eye on online trading platforms. Its focus? Tackling high-risk investment offers, ensuring proper supervision by trading firms and addressing deceptive marketing tactics.

Navigating the risks in online trading

ASIC Commissioner Simone Constant says the commission is working to prevent unfair and risky practices that could negatively affect everyday investors.

This includes addressing issues from 'easy money' schemes (deceptive or misleading investment schemes that promise quick and effortless profits) and the use of gamification and influencer marketing in investments.

Let's break it down

ASIC is looking out for a bunch of things to keep your investments safe.

First, it's keeping an eye on what it calls 'easy money' schemes. These are tricky plans that promise you'll make lots of money quickly and easily. But the catch is, they often don't work out, and you could end up losing money.

Next, it's checking how investing feels like a game. Sometimes, investment apps make it all fun and playful, like a video game. ASIC wants to make sure it's clear that investing is serious business, not just a game.

Lastly, it's watching out for famous people or social media stars who talk about investments. These people can influence your choices, but ASIC wants to make sure they're not saying things just to make money themselves. They want everything to be fair and safe for you.

"Licensed online trading providers are required to meet important licensee obligations as gatekeepers for offers of investment products and services to retail clients," ASIC's Commissioner said.

"Where we identify significant harm, we will continue to take strong regulatory action including, where appropriate, commencing court proceedings."

ASIC aims to ensure you're well-informed about something significant. Sometimes, those 'zero' or 'low-cost' deals in investing might not be as clear as they seem. There could be hidden costs, and ASIC wants you to be aware of them.

Additionally, with the rise of DIY investing, 'pump and dump' schemes have become a concern. These schemes involve overhyping stocks based on misleading information, leading to significant financial losses for those who invest late.

But what is DIY Investing? Have a look here:

  • DIY investing. This stands for "Do-It-Yourself" investing. It's where individuals take charge of their own investment decisions instead of hiring a professional like a financial advisor or fund manager. With DIY investing, you're the one picking stocks, bonds, or other assets to invest in.
  • How it works. Thanks to the internet and various investment apps, DIY investing has become more accessible. You can open an investment account online, research different companies or funds, and decide where to put your money.
  • Why it's popular. Many people like DIY investing because it gives them control over their investment choices and can be more cost-effective since you're not paying fees to a fund manager or advisor.

What you should know about these online trading providers

Let's take a step back and understand who these online trading providers are.

They're a mixed bag, ranging from fintech startups to big-name stockbrokers, all licensed under the Australian Financial Services (AFS) framework.

Many of these new players are shaking things up by offering low-cost trading options, user-friendly apps and some innovative products.

Now, here's something interesting: ASIC's research during the COVID-19 pandemic highlighted just how much digital and social media channels are shaping the way retail investors make decisions. There's a real variety in the trading platforms people are using.

In 2022-23, ASIC ramped up its game.

It has been closely watching how these online trading providers operate, checking out their business models, what they're offering, and most importantly, if they're playing by the rules.

In October 2023 ASIC launched the 'Don't Get Burnt by Hype' campaign, including a film titled 'Dumb Money', which explored the GameStop stock surge.

ASIC CEO Warren Day emphasised the importance of due diligence and understanding the risks associated with investments, particularly for those new to the market.

Always remember that if an investment proposition seems too good to be true, it likely is.

Looking for a low-cost online broker to invest in the stock market? Compare share trading platforms to start investing in stocks and ETFs.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involve substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances and obtain your own advice before making any trades.

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