Australia plans to extend the new Forex / CFD regulations until 2031.

Australian financial market regulator ASIC has announced plans to extend the existence of a "temporary" product intervention on the Forex and CFD markets from 18 months to ... 10 years. The changes announced in October 2020 were to apply from May 2021 for 1,5 years. Now the date of their "expiry" would be set for 2031. Probably with a further possibility of extending this deadline.

Traders have to get used to the lower leverage

The global trend of introducing radical changes for the Forex / CFD market, including in limiting leverage, it was initiated by the American NFA in 2010. It was then that the leverage was reduced to 1:50. It was in this direction that the European one went ESMAwhich in 2017 also decided to implement a "temporary" product intervention and limit the leverage to 1:30. When ESMA's regulations "expired" after 3 years, regulators from all over Europe practically duplicated these regulations at the national level, thus making the intervention permanent. And Australia has similar plans now.

Traders' performance better with lower leverage?

To make this decision by ASIC led to a marked improvement in the performance of retail clients trading currencies and CFDs with Australian retail brokers following the enactment of the new rules. During the first three months of product intervention operation, the ASIC stated that it had seen significant improvements in key indicators and retail client injury indicators in CFD trading - mainly reducing retail client losses.

Retail customers reported $ 22 million in net trading losses, according to ASIC CFDs post-approval, down 94% compared to the quarterly average of $ 372 million in the year prior to commissioning product intervention. Loss-generating retail client accounts were 45% lower compared to the quarterly average of the previous year, while the number of profitable retail client accounts only decreased by 4% over the same period. Total and average losses to loss-making retail accounts also decreased.

The proportion of profitable and loss-making retail customer accounts was evenly split at 50%, compared with the quarterly average of 36% profitable and 64% lossy accounts in the previous year. The margin closeout, whereby a retail client's CFD positions are closed before all or most of the client's funds are lost, was reduced by 85%. The number of negative balance occurrences decreased tenfold.

ASIC added that it will continue to monitor and evaluate the execution of the CFD Product Intervention order during the consultation period that ends on November 29, 2021.

Official ASIC message

How much to believe statistics (and ASIC)?

As can be seen, ASIC assesses changes mainly using statistics in which it does not provide the full set of data. We do not have precise information on the number of "before" and "after" customers and the exact period of the study.

Please note that since the changes were made by the ASIC, non-resident clients Australiapractically month after month they were “pushed” beyond the local regulations. They had the choice of either closing an account with an Australian broker or transferring the account to another country's jurisdiction, if their broker offered such an option (popular destinations were off-shore licenses, such as Seychelles, Vanuatu or Belize).

It should be remembered that as a result of the introduction of regulations by ESMA in 2017-2020, Australian brokers have become extremely popular among traders from Europe, including precisely thanks to access to the leverage of more than 1:30. In 2020, the outflow of these customers could significantly reduce the amount of total losses on the part of customers.

Also, undoubtedly, the reduction in leverage extends the life of customers' accounts, making them lose money more slowly. Does this ultimately lead to better long-term performance, or does it only prolong the "agony"? Unfortunately, we cannot read this from the published data.