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#1 11-10-2019 09:52:41

johnedward
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From: Paris - France
Registered: 21-12-2009
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Australia's handling of CFD leverage levels

Australia's handling of CFD leverage levels


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Justin Grossard, a forex industry and CFD specialist in Australia, examines the potential effects of the proposed ASIC restriction and how Australian brokers will be able to stay strong and consider their high quality service as a factor of customer loyalty.

Australia's forex sector is undoubtedly one of the success stories of financial services for individuals. For nearly 20 years, Australia has pragmatically established its reputation and global position as a benchmark for forex and CFD trading.

A world-class corporate culture, a thriving national economy, increasingly cautious and well-structured regulation for electronic trading companies and, most importantly, close commercial ties with the golden goose of the currency exchange sector: China and the Asian-Pacific region.

Recently, the non-banking financial services regulator, ASIC, made the draconian decision to make proposals to restrict the method by which OTC derivatives companies can offer certain levereged forex trading products that fall under the rules of the Australian Financial Services License (AFSL).

The most troubling aspects of the industry proposals are the potential restrictions of the leverage effect of foreign exchange products and CFDs, and the other being the restrictions on the sale or supply of any derivative OTC products to foreign customers by Australian brokers.

Although this seemed to happen quickly, there is speculation in recent years that ASIC could take steps to follow European decisions, and perhaps more specifically, Japan's restrictions on the effect of lever taken over 6 years ago.

The example of the Japanese currency market

Let's take a step back and look at how Japan, an equally conservative and domestically focused market of specialised and analytical entities, reacted when the domestic regulator restricted its financial leverage. It has created a more sustainable and secure environment, which has been welcomed, volumes have increased and foreign companies have not yet succeeded.

The opinion of many brokers of the Western jurisdictions of the time had anticipated an influx of Japanese traders eager to avoid the Japanese giants in order to benefit from the leverage in Europe, Australia and Great Britain which was well above the 1:25 imposed at the time, but in reality, nothing happened.

Japanese traders have not left the larger Japanese brokers. Given the current nervousness surrounding the future of the Western forex markets since the implementation of the ESMA restrictions on leverage, and now Australia's proposals, a sense of uncertainty has gained small and medium-sized brokerages. Many technology providers whose solutions are based on volume capitalisation, and even large companies are concerned about a potential downturn in the market and lower revenues due to reduced leverage, and restrictions on certain Google and Facebook ads.

Despite the absence of international competition in Japan, business is booming for domestic forex brokers, and there is no indication that Japanese traders seek to trade with companies located abroad. For now, it is appropriate to return to early 2013, when the Japanese FSA put in place leverage restrictions for all participants in the Japanese market. These restrictions did not, in fact, undermine the broad dominance of domestic firms, no major changes occurred, and the status quo prevailed. This could therefore serve as a reference for evaluating ESMA's current decisions.

Between January and March 2016, 15,316,413 billion yen were traded over-the-counter between Japanese companies, up 49.9% from the previous quarter and a record high.

It should therefore be considered that Japan is not a market in which non-Japanese companies can apply, whether externally or internally. Japan's forex industry is fully focused on the domestic market, but accounts for between 35% and 40% of all retail currency volumes around the world.

When the Japanese FSA limits leverage to 1:30, Japanese traders can increase the margin with which they trade, instead of having a minimum margin and relying solely on leverage.

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"Anything worth having is worth going for - all the way." - J.R. Ewing

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