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CFD intervention in Australia has entered into force. From today the leverage is 1:30

As of today, product intervention on the Forex/CFD market has come into force in Australia. The maximum leverage ratio was reduced from 1:500 to 1:30.

The Australian Securities and Investments Commission (ASIC) has restricted CFD trading. From Monday 29 March, the leverage is reduced. Instead of leverage of 1500, 1:30 will appear, and only for major currency pairs. In the case of cryptocurrencies, the maximum leverage from today is 1:2. Additionally, the regulator introduces a requirement of protection against negative balance and prohibits marketing based on bonuses and rebates.

From March 29, 2021, the maximum financial leverage on the Australian CFD market is:

  • 1:30 – for major currency pairs;
  • 1:20 – for non-major currency pairs and gold and major indices;
  • 1:10 – for commodities other than gold and other stock indices;
  • 1:5 – for individual stocks and other reference values;
  • 1:2 – for cryptocurrencies.

“Temporary” introversion

Liquidation, as in the case of ESMA product intervention, also Australian restrictions are to be only temporary. ASIC has the right to order any investment products or product class. However, this type of product intervention may not last longer than 18 months.

In practice, as was the case in Europe, the supervisor may announce another product intervention when the first intervention expires, maintaining the restrictions. So expect the Australian CFD market to be changing permanently.

Criminal responsibility

People and entities that violate ESMA’s product intervention are exposed to very severe legal sanctions. For breaking the restrictions, there is a penalty of up to 5 years in prison and financial fines. The maximum fine that a broker can receive in breach of the new regulations is AUD 555 million (approximately USD 423 million).

In addition to breaches related to leverage, bonuses or negative balance protection, ASIC also intends to stigmatize the inappropriate categorization of clients (eg treating retail clients as wholesalers). Any breach of product intervention may result in permanent exclusion from the Australian market.

What awaits Australian brokers?

It should be assumed that, just as it was during the restrictions introduced in the European Union, product intervention will lead to a large decrease in the income of Australian brokers. Nevertheless, most of them declared their readiness to adapt to the changes.

Some companies, including IC Markets, have offered clients to transfer accounts to their subsidiaries regulated in places allowing higher leverage, such as Seychelles. Many traders, accustomed to high leverage, may, however, end up with brokers from the grey market, where they will not be protected by product interventions of any financial supervision.

Author: Izabela Kamionka

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