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Australia to cap leverage at 1:20 and ban binary options

Aug 22 2019
By
Jonathan Smith

 

The latest major forex hub which allowed retail clients to use higher leverage, Australia, is about to cap leverage at 1:20, and ban binary options altogether. In an attempt to address “significant detriment to retail clients” resulting from trading in binary options and CFDs, the Australian Securities and Investments Commission (ASIC) proposed product intervention measures similar to those applied by the European Securities and Markets Authority (ESMA) last year.

 

This became clear from a consultation paper published today, which proposes a single leverage ratio limit of 1:20 for all forex pairs and gold. This is actually harsher than ESMA’s restrictions which allow the use of leverage of up to 1:30 for major currency pairs. As regards equity indices, ASIC suggests a maximum level of 1:15, commodities excluding gold 1:10, equities 1:5, and crypto-assets 1:2.

 

The other product intervention measures regarding offering CFDs to retail clients proposed by ASIC include providing negative balance protection, implementing a standardized approach to automatic close-outs of client’s CFD positions in margin call, prohibiting certain trading inducements, and enhancing transparency of CFD pricing, execution, costs and risks.

 

Commenting on the planned restrictions, ASIC Commissioner Cathie Armour said: “For many years ASIC has taken strong action to protect consumers of binary options and CFDs, using the range of regulatory tools available to us. However, we are concerned that consumers continue to suffer significant harm from trading these products.”

 

In order to illustrate the detriment to retail clients, ASIC has included in its official statement some statistics. According to a survey conducted by the Australian financial regulator in 2017, 80% of clients who traded binary options lost money; 72% of clients who traded CFDs lost their investment amount, and 63% of clients who traded forex lost money.

 

ASIC is now seeking feedback on its proposed product intervention measures until the 1st of October 2019. Most probably, trading in binary options will be banned, as figures show that nearly all traders lose money, and Cathie Armour said that they have product characteristics similar to gambling products.

 

We are about to see whether the proposed measures regarding CFD trades will be adopted, but some restrictions will definitely be applied for investor protection concerns.

 

TAGS: ASIC  leverage cap  binary options ban  Australia  product intervention measures 

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