The Australian Securities and Investments Commission, or ASIC, has made an official announcement. This announcement pertained to new restrictions imposed on the selling of contracts for difference (CFDs) to retail clients, citing concerns over investor protection.

Limiting Leverage And Including Account Protection

Alongside these new rules, a stipulation was made regarding negative account protection. With this, customers are incapable of listing more money than their original trade stake, which was developed to avoid another debacle like that which followed after the Swiss Franc collapse back in 2015. Lastly, the new rules expressly forbid bonuses or other forms of incentive, be it monetary or otherwise, that could encourage overtrading.

The biggest hit for brokers, in particular, is the massive leverage limit that ASIC has imposed, much like other countries. This limits the amount of extra funding brokers are allowed to give clients to give a bit more power to their bets. Firms under proper regulation of ASIC are now mandated to have a leverage of 30:1 at most.

Various Assets; Various Maximum Leverages

It should be noted, however, that various types of assets hold different leverage limits under these new rules, varying in accordance with the asset class in particular’s volatility. Major currency pairs allow for a 30:1 ratio, while a 20:1 ratio is reserved for gold, major indices, and non-major currency pairs. Commodities outside of gold, as well as non-major equity indices, are limited to a 10:1 leverage. Lastly, other reference values, such as individual equities, are kept at a 5:1 ratio. Cryptocurrencies got the worst of it, thanks to its rampant volatility, and only boasts a 2:1 maximum leverage for Australian brokers.

It was just last year when ASIC had released its report in regard to its new product intervention measures. These measures came down hard on CFDs as well as binary options, in particular.

Cracking Down On Dangerous Investments

These new measures allow ASIC to intervene should the regulator conclude that a credit or financial product can cause considerable harm to consumers. These powers were officially legislated back in April of last year

The Australian regulator has been busy ever since, proposing a summary ban on all binary options within Australia, and mandating extreme leverage restrictions on CFD products.

With these new rules, ASIC’s requirements have effectively lined up with the requirements for product approval that ESMA had introduced to Europe, having already banned binary options. Furthermore, leverage limits were put on CFDs, as well.