One of the world’s largest providers of highly complex financial betting products has been hit with a class action on behalf of 20,000 Australian investors who have allegedly lost hundreds of millions of dollars.

IG Markets, a group listed in London with a large business in Australia, is alleged to have sold high risk financial products to inexperienced investors. The case is being brought by law firm Piper Alderman and is funded by Omni Bridgeway in the Federal Court.

The class action alleges IG Markets failed to adequately assess investors’ objectives, financial situations and did not adequately disclose the risks to its customers. The case applies to anyone who acquired contracts for difference from IG Markets over the past six years.

A spokesperson for IG said the company would be defending the action.

“At IG, our focus is on providing our clients with a world-leading trading experience,” the spokesperson said. “We are differentiated by our strong commitment to our clients and our technology, education and information resources that support our clients through their trading journey. This has and continues to be at the heart of our proposition.”

Contracts for difference have been described by a Federal Court judge previously as “financial heroin hits”. They allow investors to make short-term bets on movements in share prices or commodity prices. They also allow the purchaser to use leverage, basically a debt with the betting house, to amplifying their winnings. However, the products are also designed so that if an investor’s bet is wrong, the investor can be forced to pay the trading house many times the amount they initially punted on the price movement.

An ASIC review in 2019 found 72 per cent of retail clients who traded the products lost money.

Part of the case relies on changes that IG Markets made to its disclosures to customers before and after new rules the corporate watchdog put in place in March 2021 regarding trading the products.

The Australian Securities and Investment Commission moved to drastically reduce the amount of leverage available to retail customers on each product. Before the changes, customers in Australia were able to magnify their bet on the movement in the price of a company’s shares or a commodity by as much as 500 times.