ASIC To Implement New Leverage Restrictions on CFDs

Aussie Brokers are preparing themselves to adhere to updated guidelines as stipulated by the Australian Securities and Investments Commission (ASIC). ASIC plans to implement additional restrictions that will introduce new leverage levels to the retail contract for difference (CFDs) market.

The new leverage levels plan to restrict the current offerings from 400:1 to 30:1 on major currency pairs. They will be effective from March 29, 2021, and their impact is expected to be felt across the retail market.

ASIC Seeks To Protect Traders from Losses

ASIC stated that the goal of these restrictions is to protect customers from trade losses. The levels will interfere with the current market momentum and significantly reduce the existing average trading volume. However, they are deemed to be necessary by the Australian financial watchdog and so far, FX brokers have responded positively.

Commenting on the new restrictions, the Managing Director of FX broker OANDA, Anthony Griffin, said they are of paramount importance. They will protect numerous less-experienced traders who take high leverage positions without sufficient understanding of liquidation risks.

Griffin added that many such traders end up learning their lesson the hard way when prices go the other way.

One of the priorities of ASIC is to protect these traders by enforcing limited leveraged positions. The restrictions are also the result of ASIC’s long-standing plan to launch an intervention on trading products.

ASIC Restrictions to Curb Fraud in Binary Options

Binary options are unpopular with many reputable financial regulatory bodies, including ASIC, for their fraud-prone nature. This makes them high-risk investments that are often abused by brokers and fraudsters to attract unsuspecting traders.

In similar ASIC news, the Australian watchdog won a case against broker AlphaBinary which paid AUD 75 million in fines.

Despite the general willingness of Aussie brokers to implement the changes, some brokers do not think they are necessary.  Quinn Perrot of TRAction Fintech said that changing the leverage does not affect the outcome for traders.

“The clients’ win-loss ratio remains the same even if it happens at a slower pace.” Said Perrot.

However, Perrot added that ASIC did not overstep by planning to implement these changes.

“It is well within regulator rights and aligning ASIC with global regulations was essential as a de-facto obligation.”

There are many top regulators around the world, which are similarly pushing for more strict regulations in the CFDs and other markets. This has been compounded by the impact of ineffectiveness of buyer-beware guidelines which most traders ignore.