27 August 2019

ASIC Intervention in CFD Market may have unintended consequences!

The Australian Securities and Investments Commission (ASIC) have announced their intention to intervene in the CFD (contracts for difference) markets in a consultation paper released on the 22nd August. ASIC’s announcement can be attributed to their growing alarm at the losses experienced by Australians in the market.

Responding to a growing number of complaints by Australian investors and some particularly poor revelations about some broker tactics ASIC has flagged that they intend restricting the amount of leverage available on CFD transactions.

It is important to note the language used by ASIC commissioner Cathie Armour who stated that CFDs were good investments for some people that served legitimate trading, investment and hedging purposes. ASIC, however, considered that consumer protections were necessary. She also stated that the proposed changes should make for happier customers and happy customers make more sustainable businesses.

Undoubtedly, the proposals for ASIC are well intentioned and the moves to protect investors are needed. ASIC’s data make it clear that many Australians on low incomes and with little knowledge of exactly how CFDs work are being drawn into the market without proper training or guidance. As we often stress on our site, Forex trading in all its forms requires training, up to date knowledge and clear strategies to work with in order to trade successfully.

Legislating to protect people from their own lack of knowledge is difficult to do in a global economy. While Australian brokers ability to offer leveraged CFDs may be limited, the potential for Australian retail investors to be attracted to the CFD market will still be there.

Reducing trading options within Australia, may cause the unintended consequence of Australian investors being sucked into trading in environments that are less regulated. Some Australian brokers have already moved to set up companies in the British Virgin Islands and the Seychelles, it would appear to circumvent anticipated regulations by ASIC and there are already many brokers operating from similar environments.

People lured into the trading market without proper Forex training are inevitably lured in by slick marketing campaigns promising high yields. Those marketing campaigns will still be visible in a myriad of online platforms that will not be subject to the proposed ASIC regulations. Potentially, this may leave poorly equipped Australian traders being exposed to greater risk with even less protections than Australian traders currently enjoy.

While regulations to protect uninformed investors were undoubtedly necessary, education about Forex and CFDs is the best way to protect retail investors from the risks that are associated with the markets. USGFX are renowned for their commitment to providing quality trading and information to novice and expert traders alike. We understand that a truly successful broking business is reliant upon building quality relationships with our clients and invest heavily in building those relationships through education. If you are considering entering the Forex market then you need a reputable broking firm that will provide you with up to date information and quality training and that broker is USGFX.

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