As has been demonstrated by the recent crisis created by the de-pegging of the Swiss franc, high leverage in the forex industry is not only notoriously risky to clients, but could potentially put brokerages at risk as well. This justifies why the forex industry regulatory authorities are now reconsidering their position with regards to leverage ratios.
Japan’s financial markets regulatory authority, the Financial Services Agency, has already reduced leverage to 1:25 back in 2012, while in the US there are also strict limits on the maximum leverage that brokers can offer. Moreover, more recently Hong Kong’s authorities also reduced the maximum allowable leverage, driving many Asian traders to open accounts with Australian forex firms, because Australia is a jurisdiction that still allows very high leverage of 500:1.
However, according to statements made by the Chairman of the Australian Securities and Investments Commission (ASIC) before the country’s parliament, the Australian regulator is also thinking of capping the maximum leverage offered to traders and follow the example of other regulators, because it no longer wishes to picked off from brokers wishing to offer excessive leverage.
This is in line also with another admission made by ASIC that it has made it harder for brokers to get a license in the country, especially those brokers aiming to use Australia as a base of their operations in the Asia-Pacific market. ASIC no longer wishes to be considered as a “flag of opportunity” for brokers wishing to offer very high leverage and target mainly Far Eastern customers using Australia as their base. This is why it has recently being making moves to turn its local regulatory environment inhospitable for new brokers by showing reluctance to process new applications, issuing numerous warnings to investors about the risks and dangers of online retail forex trading and also by requiring the already licensed brokers to prove that the majority of their clients are Australians in order to allow them to keep their license.
Western FX firms have long being choosing Australia as their regional hub, not only because they wish to attract clients from the lucrative Asian Pacific market to which Australia has close proximity, but also due to its reputable regulatory oversight and its highly organized business environment. Moreover, Australia’s large Chinese speaking immigrant community has made it a convenient jurisdiction for operating a brokerage targeting Chinese traders and offering them high leverage and attractive terms, whilst being based in a highly respected jurisdiction.
George Milios is the founder of onlineforextrading.net, the binary options and forex news portal which is dedicated to providing you with all the information you need to successfully trade.