Australian Securities & Investments Commission Restrictions for Forex Brokers
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- ASIC New Regulations on leveraged products
- What these new measures mean for traders
The Australian Securities & Investments Commission (ASIC) recently issued new rules surrounding over the counter (OTC) leveraged products for retail traders. These announcements date back as far as August 2019 when ASIC first proposed several restrictions, that if implemented, would impact traders who trade Forex, Cryptos, Indices & Commodities.
The final rules were then announced in October 2020 to come into effect in March 2021 for traders in both Australia and New Zealand. These new restrictions will significantly reduce the leverage traders can access when trading. So, let’s take you through everything you need to know.
It is not unknown in the trading ecosystem that leverage helps amplify your positions. Under these new restrictions, maximum leverage ratios will be considerably lower. This means that traders will need to place more capital for the same size trade.
New Maximum Leverage
- 1:30 for leveraged products referencing an exchange rate for a major currency pair: Pairs including any two of USD, AUD, GBP, CAD, EUR, JPY, or CHF.
- 1:20 for leveraged products referencing an exchange rate for minor currency pair (any pair not listed above), gold, or a major stock market index. Major stocks include S&P500, STOXX50, NASDAQ 100, S&P/ASX200, NASDAQ Composite, Nikkei, Dow Jones, DAX, FTSE100, and CAC 40.
- 1:10 for leveraged products referencing commodities other than gold, or a minor stock market index.
- 1:5 for leveraged products referencing shares or other assets, including all publicly traded companies.
- 1:2 for leveraged products referencing crypto assets, Bitcoin, Ethereum & Litecoin.
What These New Restrictions Mean for Traders
As mentioned, these new rules mean lower margin but what does that mean for your trades?
So, let’s take you through some examples:
Say you have $1,000 and want to open a USD/EUR position for $500. Before the new rules traders would have had access to leverage of 500:1 meaning the size of the position they could take with the $500 would be $250,000. However, now this position is noticeably lower. With leverage of 30:1 for the same position, traders can only take $15,000.
Maybe you are a crypto trader, and you have $5,000 and want to trade $2,000 on BTC/USD. It’s the same idea before you would have had the leverage of 10:1 but now this drops to 2:1. Meaning before your borrowed funds would amount to $20,000 but are now $4,000.
Other Changes Imposed
ASIC is looking to standardize leveraged products such as Forex, cryptos, commodities, etc. from issuing margin close-out arrangements that act as a circuit breaker to close-out one or more of your positions before you lose all or a great proportion of your investment.
Negative Balance Protection
It will also limit clients’ losses and minimize negative account balances.
Why are These Measures in Place?
There has been an increasingly growing number of traders choosing to trade financial markets. ASIC’s new measures are being put in place to raise industry standards and try to improve outcomes for traders. These new rules are broadly consistent with other measures that exist in overseas markets.
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