ASIC Commissioner: Retail FX Trading On The Rise in Australia

FX transactions contributed more than 60 per cent to the total OTC derivatives transactions in 2018.

Interest in over-the-counter (OTC) foreign exchange (forex) trading is growing among retail investors in Australia. That’s according to a speech on Wednesday by Cathie Armour, Commissioner of the Australian Securities and Investments Commission (ASIC).

Speaking at the ACI Redefining Conduct in FX Markets Seminar in Sydney on Wednesday, Armour noted that the number of retail clients trading OTC derivatives has doubled in the past two years.

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Cathie Armour the ASIC Commissioner
Cathie Armour, ASIC Commissioner
Source: Chief Executive Women

Following a review in April 2019, ASIC found that there are now more than 60 contracts-for-difference (CFD) and binary options issuers licensed in Australia. Furthermore, the annual turnover for OTC derivatives was $21 trillion. The regulator found that 1 million investors are participating in this market, 99 percent of which are retail clients.

During 2018, 675 million transactions were made for OTC derivatives. From this, 426 million, or more than 60 percent, were in forex products. This is significantly higher than the regulator’s previous review when there were only 165 million transactions in FX products.

Armour notes that for FX products, there has been a large uptick in interest. Not only that, but this growth has been much faster than the growth in the number of CFD or binary options transactions over the same period.

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Nonetheless, FX trading is still behind that of CFDs, with margin FX representing around 32 percent in terms of net revenue, whereas CFDs contribute 39 percent.

ASIC focuses on flaws in FX space – leverage

The ASIC Commissioner also pointed out quite a few flaws in the FX space, namely, 80 percent of OTC retail derivatives clients reside offshore and many margin forex issuers offer leverage of 400:1 and higher, which provides $2 million exposure on a $5,000 investment. In Armour’s own words, “That’s staggering exposure.”

“We will continue to review the data we’ve gathered and will address the key themes and concerns that arise from the review. Where we see that products or practices in this sector have resulted in, or are likely to result in, significant consumer harm then we will address this harm using the full range of power available to us,” the statement said.

In the speech, Armour also stated that ASIC has recently closed its consultation period for its proposed product intervention measures. The regulator plans to implement these temporary measures once it has reviewed the feedback.

As Finance Magnates reported, the Australian financial regulator is aiming to filter out products which it deems toxic to customers. Just as in Europe, ASIC is reviewing some of the most popular products for retail investors, namely binary options and CFDs.

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