Currency trading, commonly referred to as “Forex trading”, is flourishing in Australia, thanks in large part to the country’s liberal stance towards brokers and trading service providers. This sector is adequately regulated by local authorities, which guarantees a high level of safety and protection for customers.
Its liberal, yet cautious regulatory environment has helped make Australia an attractive investment destination, attracting a large number of trusted and reliable brokers over the past decades. Traders in this jurisdiction have a versatile choice from a variety of instruments, including currencies, commodities, and leveraged derivatives.
If you are based in Australia and are considering joining the vast community of forex traders, take the time to read this article. You’ll learn everything you need to know about local regulations, the payment methods you can use, and the trading software Australians generally prefer to use.
Forex regulations in Australia
Forex brokers that serve traders in the country must operate in strict compliance with various regulatory policies that aim to protect customers and minimize instances of scam and fraudulent activity.
Local law states that all brokers must hold a valid license from the Australian regulator ASIC before they can serve Australian clients. Brokerage websites that serve premises without the consent of the regulator are proactively blocked.
Another policy states that licensed brokerage companies must establish a representative office in the country, which increases accountability and inspires greater trust. This promotes transparency and helps prevent fraudulent practices.
To protect Australian traders, the local regulator requires brokerages to store client money in segregated accounts. Brokers must provide evidence of this segregation to the regulator when asked. This way, if a broker were to file for insolvency, clients’ funds would remain untouched. Australian brokers are further protected by different insurance schemes and protection plans.
Each broker applying for an Australian license must have a working capital of at least AU$1 million. On the one hand, it ensures that the company can withstand volatile fluctuations in the markets. On the other hand, it ensures that brokers can sustain their clients’ orders during volatile market events without the increased risk of going into debt due to huge negative client balances.
Brokers in Australia offer a fast and flawless trading experience through stable and highly efficient platforms. Traders also have access to leveraged products like contracts for difference (CFDs), which allow them to trade with more money than is deposited in their accounts. At this time, there are no official restrictions on the maximum leverage allowed for Australian clients, although most trading platforms intended to serve clients in the country have a leverage cap of 500:1.
The leverage may also be lower or higher depending on the client’s account history. New registrants who open accounts with an Australian forex broker can trade with significantly lower leverage than experienced professionals.
The types of instruments you trade with also affect the leverage cap. For example, leverage in cryptocurrency markets is generally much lower than that of currencies and commodities.
The local regulator limits credit card deposits to $1,000 when new Australian customers open an account with a licensed brokerage firm. Traders should also keep in mind that they are expected to report their trading income as taxable income.
Australian financial regulators
Forex brokers that cater to Australian clients are subject to stringent oversight by the Australian Securities and Investments Commission, also known as ASIC. ASIC was established in July 1998. It operates under the provisions of the Australian Securities and Investments Commission Act 2001.
ASIC has various areas of responsibility as it regulates the financial services, derivatives, securities and insurance industries. If an online brokerage company wishes to operate on Australian soil, it must first apply for a license with ASIC. This license serves to assure Australian clients that the brokerage services provided are in full compliance with ASIC’s high standards for security and transparency.
The regulator maintains an online registry with its licensees, where traders can find all the brokers that fall under its jurisdiction. This authority also deals with the resolution of disputes between clients and brokers. It constantly monitors its licensees and is quick to launch investigations if a brokerage firm is suspected of deviating from its regulatory policies.
The second major Australian regulator is the Australian Prudential Regulation Authority (APRA). Created at the same time as ASIC, APRA is responsible for the regulation of banking institutions, credit unions and insurance companies.
One of the proposed measures concerns the restriction of maximum limits on leverage , which will probably be reduced to 20:1 for currency pairs and precious metals, 10:1 for all other commodities, 2:1 for cryptocurrencies, 5:1 for stocks and 15:1 for trades on stock indices. These restrictions will only apply to retail trader accounts, while professional traders will be exempt if the changes are implemented.
The main motivation behind the proposal is to protect inexperienced clients from the massive losses they might incur when trading volatile leveraged products. The regulator also wants to ban transactions with binary options for eighteen months, which is the maximum time allowed by law. The proposed amendments are yet to enter into force.