ASIC regulations: what do CFD traders need to know

We examine how ASIC’s just-introduced changes to CFD trading in Australia will impact retail clients.

CFD Trading: the impact of ASIC’s new rules

With the Australian Securities and Investments Commission (ASIC) two weeks ago introducing a new set of rules for around over-the-counter (OTC) CFD trading, below we look at how these regulatory changes will impact traders in Australia from 29 March 2021.

IG has long supported ASIC’s intentions to raise industry standard and improve outcomes for retail traders. ASIC’s new measures are similar to regulations applied in Europe, Singapore and Japan, and IG remains focused and committed to empowering traders in Australia.

Currency, equity and bond markets have indeed proven volatile since mid-2019 – opening up significant opportunities for traders to witness both pronounced losses and profits in that time period.

Under ASIC’s new rules, ASIC has imposed a number of restrictions on CFD trading for retail clients.

As it relates to CFD trading, some of the key changes that will impact retail traders include:

  • Margin rates will increase across all asset classes
  • Total losses on your CFD positions will not exceed funding in your trading account
  • Prohibition of certain benefits to traders
  • Margin close out ratios

ASIC is still considering a potential ban of binary options.

Additional information regarding these changes and how they may impact you are provided at the bottom of this page.

Pro clients: The impact

While retail traders are set to be impacted by ASIC’s rule changes – wholesale clients (including sophisticated investors)are exempt from the changes outlined above. If you meet the criteria to be classified as a wholesale client, you may be eligible for IG Pro.

Click here to find out if you’re eligible to be classified as Pro with IG.

Should you quality as a Professional or Pro investor, some of the key features include:

  • Lower margin rates on major indices, forex, shares and cryptocurrency CFDs
  • Higher-level volume-based rebates
  • Access to a dedicated account manager

However, you will not be entitled to the following protections afforded to retail clients under the Corporation Act 2001 (Cth):

  • The protections afforded to retail clients under ASIC’s product intervention measures for CFDs, including leverage restrictions
  • You will not be given a Product Disclosure Statement (PDS) or Financial Services Guide (FSG)
  • The applicable Future of Financial Advice (FoFa) requirements relating to conflicted remuneration do not apply
  • The Australian Financial Complaints Authority, has discretion to exclude complaints from wholesale clients

Margin rate changes

The below table details the new changes in margin rates. The increase in margin requirements resulting from ASIC’s rules will apply to new positions from 29 March 2021 onwards.

Asset class

Current minimum margin rate

Minimum margin rate from 29 March 2021

Major forex pairs1

0.5% (200:1)

3.33% (30:1)

Major indices2

0.5% (200:1)

5% (20:1)

Minor forex pairs1 and gold

0.5% (200:1)

5% (20:1)

Minor indices2

0.5% (200:1)

10% (10:1)

Commodities (excluding gold)

1.5% (67:1)

10% (10:1)

Shares or other underlying assets

5% (20:1)

20% (5:1)

Cryptocurrency

10% (10:1)

50% (2:1)

Find out more about IG’s minimum margin rates, under ASIC's new rules, for retail clients here.

Additional information for traders to consider

New rule

Description

Margin close-out

If the total funds in your CFD account fall below 50% of the margin required for all your open CFD positions on your account, one or more of your open CFD positions will be closed out as soon as market conditions allow.

Negative balance protection

The total losses on your CFD positions will be limited to the funds in your trading account.

Prohibition on certain benefits

Benefits including certain gifts and rewards are not permitted to be given or offered to induce a retail client to open or trade on a CFD account, or to deposit funds into a CFD account. Information services, education and research tools are exempted, as are volume based discounts on costs and fees.

Publication date : 2020-11-02T06:30:00+0000

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

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