In these trying times, some retrospection could be crucial to the soul. Many questions can be asked, but one of the more common ones for the finance sector is if one decision could have irreversibly changed the CFD and FX industry. One could justify this question about how the trading industry’s volumes experienced an overall decline in 2019, showing that this needs investigation. The year 2019 had a slurry of declining turnovers and increased regulations, all under the banner, heralding it as the “Great Migration” of traders.
Risks Of Over-Regulation
Regulations experienced a marked shift within Europe, and resulted in most retail clients looking for greener pastures in places like Estonia, Vanuatu, and the Bahamas. As time went one, these countries were viewed as the so-called Holy Grail by various investment firms. Market professionals confirmed this, as many regulatory shifts have modified the overarching strategy of the brokerage houses themselves. Companies being regulated by big names like the FCA, ASIC, and CySEC have started to look into more exotic locales to offer their clients trades. Trades, in particular that have less restrictive trading conditions, the most obvious being higher leverage.
Australia Following ESMA’s Footsteps
Daniel Byrne, Managing Director of easyMarkets APAC, ASIC has been mimicking ESMA when it comes to regulation. According to Byrne, ASIC will soon implement a Product Intervention reform, running along the same lines as ESMA’s. This, in turn, would lower overall leverage access for Australian retail traders.
Byrne explained that the leverage would probably be lowered significantly. While Byrne and many like him can see the good and bad aspects of this change, he pointed out that regulators could put traders at higher risk by doing so. The logic is simple: By making their own markets less desirable, traders will move to more risky markets to try and earn higher profits. The only thing Byrne can state with certainty is that 2020 will be a year of significant change when it comes to Australian licensed CFD and FX providers.
An Ironic Decline
Since 2018’s start, where the world experienced a multi-month high in trading volumes, activity has slowly, but surely, been declining. One need only look at the volume,s which was at $5.508 billion at Q1 2020, before dropping down 17% to $4.493 billion in Q2 2019. This, of course, is entirely excluding the rampant coronavirus crisis happening in between, which might just speed up this entire debacle even more.
The irony of the matter, is it seems that the world has regulated itself to such a state that investors are no longer keen on how “safe” these assets are. As a result, they’re going into dangerous territories to earn those big bucks.