The Australian Securities and Investments Commission (ASIC) is going to implement restrictions on the retail contract for difference (CFDs) market. Their impact on the trading market can be huge as the leverage levels will be restricted up to 30:1 from the usual existing offerings of 400:1 on major currency pairs.
These restrictions can impact the existing trading market momentum but are deemed to be necessary. They are more in line with curbs imposed by the European regulator in mid-2018 on retail leverages and marketing.
The Australian regulator announced the restrictions intending to protect the losses by traders, and interestingly Aussie forex industry players welcomed them.
“Many of these traders undoubtedly learned their lesson the hard way,” Griffin said. Explaining the importance of the restrictions, OANDA Australia’s Managing Director, Anthony Griffin, pointed out the losses of the ‘countless less-experienced traders’, who often take high leverage positions without knowing the risk of liquidation if the prices go the other way.
Indeed, protecting these rookie traders was a priority for the Aussie regulator. The restrictions did not come overnight as ASIC was discussing trading product intervention measures for a few years.
Additionally, the CFDs curb followed the fraud by several binary options operators, an instrument criticized in most of the reputed jurisdictions. A few days before the official announcement of the CFDs restrictions, an Aussie court fined AlphaBinary AUD 75 million.
However, TRAction Fintech’s Quinn Perrott does not think these restrictions are necessary.“Having said that, I also don’t think it is an overstep. It is well within regulator rights and aligning ASIC with global regulations was essential as a de-facto obligation.” “I don’t believe they were necessary, changing the leverage doesn’t change the outcome for clients,” Perrott told FortuneZ. “The clients’ win-loss ratio remains the same even if it happens at a slower pace.”
Many top global regulators are pushing for the imposition of tougher regulations. As TRAction Fintech’s Sophie Gerber explained, the market watchdogs are realizing the drawbacks of the ‘buyer beware’ guides, which are often ignored by retail traders.
“In Australia, we are seeing the liberal government start to move away from this in other areas, such as responsible lending laws for credit contracts on the cards to be abandoned in 2021. It will be interesting to see if other product intervention measures start coming under pressure from the government,” Gerber said.