Australia's CFD leverage equation | Forex Factory

  • Australia's CFD leverage equation

    From financefeeds.com

    The retail FX brokerage sector in Australia is without doubt one of the success stories of online retail financial services. For almost two decades, Australia has been steadily and pragmatically building its reputation and global standing as a benchmark for retail FX and CFD trading. A first class business culture, thriving national economy, increasingly prudent and well structured regulations for electronic trading firms, and perhaps most importantly, close trade ties with the FX industry’s golden egg: China and the Asia Pacific region. Recently, the Australian regulator of non bank financial services, ASIC, took ... (full story)

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Paintomaker
Sep 20, 2019 2:23am
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And what about European clients that opened an account in Australia after ESMA? they will go back to an European broker or will find a company on a small country that gives them the leverage they want.

The herd mentality of Japan can't be extrapolated to the rest of the world.
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ekan
Sep 20, 2019 4:13am
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Quoting Paintomaker
And what about European clients that opened an account in Australia after ESMA? they will go back to an European broker
If the ASIC's new regulations make trading conditions about or exactly equal to those in EU, what would the incentive be? I am an EU citizen who is trading through a big Aussie firm at 500:1 and I do not intend to move account to EU if the leverage of my account is adjusted down to the levels proposed by ASIC (it has not happened as yet). The hassle is not worth it just to get the same. Internet makes Frankfurt and Sydney equally distant - all one click away. Neither do I intend to move my large account into some shady small island broker - funds safety for me is worth a lot more than leverage.
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ekan
Sep 20, 2019 6:31am
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Quoting Guest
{quote} I don't think brokers are worried big accounts. They know its going to remain. Problem for them is small accounts which are in Millions and are easy for them to manipulate. They can't afford to loose that business which is easy money for them
Those who have built their business primarily on driving people who put in 100 or 1000 dollars to margin call do not deserve to survive in a first place. Although people who put 100 or 1000 dollars thinking they will become millionaires in a few short weeks do not deserve any better either. Perhaps it is for the best both are killed off, and the assorted "gurus" who are selling this type of dream along with them.

Of course there is the argument that one can put only a small fraction of capital in the account for protection against broker going belly up, but this is not an issue for other types of asset classes. Better broker quality will also result in a much better trader protection. A similar argument is using margin call as a hard global stop loss order - again, the established markets have functioned well for more than a century without such an option.

Convergence with the established futures and options brokers in terms of trading conditions is inevitable consequence of the CFD/FX trading becoming more mainstream, particularly with the advent of MT5 and its multi-asset trading capabilities.
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MXT
Sep 21, 2019 6:19am
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Quoting ekan
{quote} Could you give some suggestions for the right way to regulate FOREX?
1 ) do the opposite of what ESMA did :

2 ) leave the leverage option at 500 : 1 . Traders themselves are already free to chose lower leverage , from 10 : 1 up to 500 : 1

3 ) there is already a cap on leverage , no need to add new : Brokers offering 500 : 1 do so on small accounts only , for big account they only offer 30 : 1 max

4 ) regulators should only focus on detecting and banning broker scams and brokers stealing money from traders and any fraudulent activity like freezing platform , re-quoting trades , playing dirty tricks with fake quotes , fake spikes , fraudulent running of clients ' stops and all kinds of dirty tricks

5 ) this would be the kind of regulation needed , even more appreciated if regulators would have first-hand trading experience ( which they do not ) when trying to regulate something they know nothing about
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MXT
Sep 21, 2019 4:12pm
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Quoting ekan
{quote} Thank you for your answer. I cannot speak for all brokers. The Aussie broker I use gives 500:1 with options to request lower leverage but does not limit it by account size. Even with my 6 digit total accounts balance I still can use 500:1, which is insane (I restrict myself to about 5:1, never more than 8:1). I know some other brokers limit leverage for large accounts, but the limits are not drastic, maybe 300:1 going down to 100:1. Brokers in less-regulated jurisdictions (the small islands I was talking about) are even looser than that....
I agree with what you say , but on some parts i would think otherwise .

Your mousetrap cheese analogy is ok , but not all brokers offering high leverage are mousetraps .

The only regulation regulators should practice , is to ban all the scam brokers and the platform freezing brokers .

But regulators , trust me , only take orders from politicians with a predetermined agenda : if they want to hit FX brokers , they do this with purpose , particularly when they see that those brokers are making too much money in Australia .

But they know nothing about markets and trading , they only know about the political interests they are serving .

But this discussion would be too long , we should maybe continue in a dedicated thread .
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ekan
Sep 21, 2019 7:44am
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Quoting MXT
{quote} 1 ) do the opposite of what ESMA did : 2 ) leave the leverage option at 500 : 1 . Traders themselves are already free to chose lower leverage , from 10 : 1 up to 500 : 1 3 ) there is already a cap on leverage , no need to add new : Brokers offering 500 : 1 do so on small accounts only , for big account they only offer 30 : 1 max 4 ) regulators should only focus on detecting and banning broker scams and brokers stealing money from traders and any fraudulent activity like freezing platform , re-quoting trades , playing dirty tricks with fake...
Thank you for your answer.

I cannot speak for all brokers. The Aussie broker I use gives 500:1 with options to request lower leverage but does not limit it by account size. Even with my 6 digit total accounts balance I still can use 500:1, which is insane (I restrict myself to about 5:1, never more than 8:1). I know some other brokers limit leverage for large accounts, but the limits are not drastic, maybe 300:1 going down to 100:1. Brokers in less-regulated jurisdictions (the small islands I was talking about) are even looser than that.

I totally agree with you that the regulators need to step in and level the field and clamp down on a lot of broker foul play tricks that are known to occur. However, I have a nagging suspicion that the brokers only offer such high leverage BECAUSE they know they can rely on these tricks to make huge profits. It's the cheese in the mousetrap. The sheer number of Forex brokers compared to equity or futures/options brokers is the testament to how lucrative this form of gambling is.

Hence my preference for tighter regulatory convergence of the CFD brokers/markets and futures/options/equities brokers/markets, applying squeeze on the brokerages so that only those with pristine reputations and proven capability to provide traders with value-added services should survive.

The function of the regulators is to watch over the industry as a whole. They do not need to be traders themselves (I think they won't be impartial if they were), but they need to understand the industry, the ecosystem of players, and the dominant business models. I think they understand it enough.
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Trader#3D5A
Sep 20, 2019 4:33am
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Quoting ekan
{quote} If the ASIC's new regulations make trading conditions about or exactly equal to those in EU, what would the incentive be? I am an EU citizen who is trading through a big Aussie firm at 500:1 and I do not intend to move account to EU if the leverage of my account is adjusted down to the levels proposed by ASIC (it has not happened as yet). The hassle is not worth it just to get the same. Internet makes Frankfurt and Sydney equally distant - all one click away. Neither do I intend to move my large account into some shady small island broker...
I don't think brokers are worried big accounts. They know its going to remain. Problem for them is small accounts which are in Millions and are easy for them to manipulate. They can't afford to loose that business which is easy money for them
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MXT
Sep 20, 2019 11:20am
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the folks at ESMA have only given a bad example of how NOT to regulate FX
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ekan
Sep 21, 2019 4:42am
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Quoting MXT
the folks at ESMA have only given a bad example of how NOT to regulate FX
Could you give some suggestions for the right way to regulate FOREX?
Reply

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