ExclamationAustralia’s 1:30 leverage: ASIC Announces Leverage Cap, Negative Balance Protection

#1
asic-1-30-forex-leverage-limits-march-2021.jpg

The Australian financial regulator, the Australian Securities and Investments Commission (ASIC), announced a set of new regulatory rules that apppear to have been heavily modelled after the regulation introduced by ESMA in the European Union last year.
Those rules involve reducing CFD leverage, protection against negative balances, standardised CFDs brokers margin close-out, banning bonuses and other incentives as well as the likely banning of binary options.
The reason for this step is a research among the clients of 13 different brokers. Those clients traded in CFDs and lost over $774 million only between March and April 2020.
According to the ASIC Commissioner Cathie Armour, the reason bind those mind-boggling losses is the high leverage and the continuing market volatility caused by the pandemic. In the light of these circumstances ASIC capped leverage at different levels for different assets:

- 1:30 leverage for CFDs on major currency pairs made of Australian, Canadian or US dollar, British pound, euro, Japanese yen and Swiss franc
- 1:20 leverage for CFDs on minor currency pairs made of any currency pairs excluding the major currency pairs, gold or a major stock market index, for example, CAC 40, DAX, Dow Jones Industrial, etc.
- 1:10 for CFDs on commodity or minor stock market index
- 1:5 for CFDs on shares and other assets;
- 1:2 for CFDs on crypto-assets


Re: Australia’s 1:30 leverage: ASIC Announces Leverage Cap, Negative Balance Protection

#2
mlawson71 wrote:
Sat Oct 24, 2020 2:23 am

- 1:30 leverage for CFDs on major currency pairs made of Australian, Canadian or US dollar, British pound, euro, Japanese yen and Swiss franc
Haha shit, quite a few traders (especially newbies) will be pretty upset about the 1:30 leverage, that's for sure.

Thanks for the update on this man.
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Re: Australia’s 1:30 leverage: ASIC Announces Leverage Cap, Negative Balance Protection

#6
mlawson71 wrote:
Sat Oct 24, 2020 2:23 am

- 1:30 leverage for CFDs on major currency pairs made of Australian, Canadian or US dollar, British pound, euro, Japanese yen and Swiss franc
LMAAAOOO................... oh australia wat have u done..............

same thingz happen in japan in 2013................. but nothing change with japan traders just adjust & invest more captial which actuall help them become better traders :think: :think: :think:
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Re: Australia’s 1:30 leverage: ASIC Announces Leverage Cap, Negative Balance Protection

#10
A quick revision of what the changes actually meant when introduced to the UK by ESMA at start of 2018.

Obviously a 10 fold reduction in leverage (1:200 down to 1:20) equals a tenfold increase in the margin requirement, the amount needed to be held in your account to open a position and keep it open. Fairly straight forward for FX but a big change for Indices, previously £100 was enough to open a minimal position size trade in Dow but now you need £1000 in your account to cover the trade.

As the asset price is a function of the margin requirement many traders with small accounts switched to lesser priced indices such as FTSE, CAC and MIB (Dow 28,000 vs FTSE 6,000).

UK Indices example:
Margin requirement = number of contracts x contract size (mini) x price x margin percentage.

eg: FTSE
1 x £1 x 6600 x 5% = £330 margin.
(1:20 leverage = 5% margin)



UK FX example:
Margin requirement = number of contracts x contract size (mini) x price x margin percentage.

e.g. GBP/USD:
1 x £10,000 x 1.5500 x 3.33% = £516.15 margin
(1:30 leverage = 3.33% margin)

(examples are using out of date asset prices)


On the plus side is the negative account protection so no longer at risk, as mentioned above, of a black swan event such as the SNB removing the dollar peg causing a 2000 pip move and hundreds of pips in slippage which left many owing the broker 10s of thousands.

Not sure if ASIC have included the ESMA requirement for brokers to disclose the % of their retail clients who lose money?

The aim of the new regulations was to protect retail traders but after 2 years there has been minimal reduction in the % of retail traders actually losing according to broker records. Was averaging around 80%, now around 75%. The suggestion is that retail traders now just lose more slowly (smaller bets).


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