The Australian Securities and Investments Commission (ASIC) has issued a warning on its consumer protection website regarding prediction markets.
Specifically, a cautionary notice was shared on Moneysmart, an online resource that the Australian Government operates to help citizens make smarter decisions about their money management.
ASIC Says Prediction Markets Bound to Generate Losses for Users
This is where prediction markets come in, with ASIC recommending people steer clear of those products if they intend to use them to generate money.
The financial watchdog bluntly states that people who tend to participate in event contracts, and specifically those on sports, end up losing money.
Prediction markets, however, generate losses for traders even when it comes to non-sports events, the ASIC survey found out, with 75% of retail traders losing money on trading binary options.
Regulator officials have said that using these platforms to try and generate wealth in any way is not a reliable undertaking when it comes to investment.
“Growing interest in prediction markets overseas, including for entertainment and sports events, has driven increased trading activity and public attention. However, the reality is that you are more likely to lose money than make money,” ASIC flatly stated, cautioning consumers against overzealous behavior when it comes to these trading websites.
ASIC argues that a commodity such as gold is a much safer bet for retail consumers, as it is unlikely to ever lose its value, and is a more reliable option for people looking to invest their money.
On the flipside, prediction markets bring with them an “all-or-nothing mentality” which resembles gambling heavily, even if technically the activity is not regulated as such.
Insider Trading Remains a Worry for Prediction Market Observers
Another apt issue raised by ASIC is the simple fact that prediction markets are increasingly open to manipulation, and there have been myriad cases of insiders taking advantage of non-publicly disclosed information to turn a profit
In the merit of these platforms, many high-profile cases, including politicians and lawmakers, have been caught and reported, with consequences for the parties at fault meted out.
Still, the core risk remains that some people may win by abusing insider information to the detriment of other participants in such prediction market platforms.