ASIC and Professional Forex Trading in Australia

Proposed CFD Product Intervention Measures

On the 22nd of August 2019 the Australian Securities & Investment Commission, also known as ASIC released a consultation paper on the subject of CFDs and their vision of how they think they should be offered by the forex brokers which ASIC regulate. ASIC’s consultation paper titled Product intervention: OTC binary options and CFDs (CP 322) details some big changes for the Australian forex industry. These changes resemble the unpopular ones which were enforced by ESMA in 2018. These changes will completely change forex trading in Australia. 

At the time, ESMA chose to enforce a limit on how much leverage can be offered to retail foreign exchange traders. These caps were 1:30 on major forex pairs and 1:20 on minor and exotic forex pairs. However, this rule was only imposed on retail traders, thus “professional” traders would not be affected. 

Professional Trader Eligibility Criteria According to ESMA

The eligibility criteria set out by ESMA was relatively reasonable and far from being a “loophole”. However, if you still want to continue forex trading in Australia, be prepared for some bold requirements. ESMA stipulated that you needed to meet at least two of the following three criteria to be considered as a professional client.

  1. the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;
  2. the size of the client’s financial instrument portfolio, defined as including cash deposits and financial instruments, exceeds EUR 500,000;
  3. the client works or has worked in the financial sector for at least one year in a professional position. This requires knowledge of the transactions or services envisaged;

Essentially what this meant was if you hadn’t worked for at least one year in the financial services industry in a company or role that required knowledge of CFD products, then you needed to have at least 500,000 EUROs in cash deposits and investments in financial instruments. It’s quite a high bar, however, not close to what ASIC requires. 

What Do Australian Forex Brokers Consider As Professional   

What ESMA considers as a professional client, ASIC considers them as wholesale clients. There are two subcategories of wholesale clients, these are sophisticated investors and professional investors. Professional investors are mostly businesses entities. According to ASIC, sophisticated clients are comparable to what ESMA considers professional clients. 

To be considered a sophisticated investor for forex trading in Australia, you need to meet at least one of the following criteria:

  • A certificate from an accountant which is not older than two years and confirms;
    • You have net assets of at least $2.5 million; or
    • You have had gross income exceeding $250 thousand for both of the two previous years
  • You control a person (for example power of attorney over someone else’s money) or entity (for example a company you own) which meets either of the requirements (a) or (b) mentioned above.
  • You intend to invest an amount that exceeds $500 thousand. 

How do European Brokers Compare to Australian Brokers?

If you want to skip the oppressive restrictions on leverage, here is a comparison table of what you would need in order to qualify. We’ve paraphrased a little bit. But it’s clear that being considered a professional forex trading in Australia will be tough. The country has set a narrow hoop to jump through. 

CriteriaEuropeAustralia
Transaction Criteria10 Traders per quarter, for 4 consecutive quartersAn investment of $500 thousand
Wealth Criteria€500 thousand$2.5 million
Professional Criteria1 year of work experience in a related fieldAn income of $250 thousand for the past 2 consecutive years

 

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