Brokers Blame Australian Regulator for Unfairly Slamming Down Their Business

The world of retail foreign exchange trading faced another battle after Australia’s financial regulator issued a harsh warning against the asset class. The Australian Securities and Investments Commission (ASIC), the country’s main organization that supervises firms operating in the financial services, banking and insurance sector, issued a grave warning to investors on its website.

The warning comes in light of a spree of illicit activity that has affected Sydney’s claim as a reputable, reliable and credible jurisdiction for business.

The regulator's notification stated that investors (customers) should, "Ensure they understand the risks of foreign exchange trading before putting their money on the line.” The notification continues with an explanation of how traders use FX as an investment/trading tool.

ASIC Commissioner, Greg Tanzer, commented in the official notification, saying: “Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest trading market by volume. According to the Bank of International Settlements (BIS) latest survey, the Forex market now turns over in excess of $5 trillion every day, with the most exchanges occurring between the US Dollar and the Euro (EUR/USD), followed by the US Dollar and the Japanese Yen (USD/JPY), then the US Dollar and Pound Sterling (GBP/USD). Ultimately, it is the very exchanging between currencies which causes a country’s currency to fluctuate in value in relation to another currency – this is known as the exchange rate. With regards to freely floating currencies, this is determined by supply and demand, such as imports and exports, and currency traders, such as banks and hedge funds. Emphasis on Retail Trading for ForexTrading the forex market for the purpose of financial gain was once the exclusive realm of financial institutions.But thanks to the invention of the internet and advances in financial technology from the 1990’s, almost anyone can now start trading this huge market. All one needs is a computer, an internet connection, and an account with a forex broker. Of course, before one starts to trade currencies, a certain level of knowledge and practice is essential. Once can gain some practice using demonstration accounts, i.e. place trades using demo money, before moving on to some real trading after attaining confidence. The main two fields of trading are known as technical analysis and fundamental analysis. Technical analysis refers to using mathematical tools and certain patterns to help decide whether to buy or sell a currency pair, and fundamental analysis refers to gauging the national and international events which may potentially affect a country’s currency value. Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest trading market by volume. According to the Bank of International Settlements (BIS) latest survey, the Forex market now turns over in excess of $5 trillion every day, with the most exchanges occurring between the US Dollar and the Euro (EUR/USD), followed by the US Dollar and the Japanese Yen (USD/JPY), then the US Dollar and Pound Sterling (GBP/USD). Ultimately, it is the very exchanging between currencies which causes a country’s currency to fluctuate in value in relation to another currency – this is known as the exchange rate. With regards to freely floating currencies, this is determined by supply and demand, such as imports and exports, and currency traders, such as banks and hedge funds. Emphasis on Retail Trading for ForexTrading the forex market for the purpose of financial gain was once the exclusive realm of financial institutions.But thanks to the invention of the internet and advances in financial technology from the 1990’s, almost anyone can now start trading this huge market. All one needs is a computer, an internet connection, and an account with a forex broker. Of course, before one starts to trade currencies, a certain level of knowledge and practice is essential. Once can gain some practice using demonstration accounts, i.e. place trades using demo money, before moving on to some real trading after attaining confidence. The main two fields of trading are known as technical analysis and fundamental analysis. Technical analysis refers to using mathematical tools and certain patterns to help decide whether to buy or sell a currency pair, and fundamental analysis refers to gauging the national and international events which may potentially affect a country’s currency value. Read this Term trading is complex and risky. Even the most skilled and experienced Forex traders have difficulty predicting movements in currencies. Trading in international currencies requires a huge amount of knowledge, research and monitoring.”

Margin FX is a derivatives product offered to traders on leverage and brokers can dictate the leverage offered to clients. A similar concept in other derivative contracts, including futures and CFDs. ASIC was the world’s first regulator to offer listed CFDs.

A Sydney-based trading professional responded to today's warning: “ASIC’s statement is unclear, unfair and misleading. FX trading is as good as any other derivatives instrument, where are the warnings against ‘other risky’ investments?"

The regulator states that it has issued the warning on the back of a major black hole that hit the Australian FX industry. Sydney-based, GTL TradeUp (GTL) went into liquidation at the end of September, thus affecting investments of several Australian investors using GTL’s trading solution.

“The warning about this complex investment comes after liquidators were appointed to GTL TradeUp Pty Ltd (GTL), a Sydney-based company involved in foreign exchange (FX or Forex) trading. ASIC is investigating GTL and the circumstances around its collapse,” the notice stated.

ASIC’s notification is somewhat out of perspective; the regulator has inappropriately blamed FX as a tradable asset class for the failures of a regulated brokerage. The regulator is responsible to monitor and supervise firms and this ‘uncalled for' warning to investors about Forex trading will only dampen the industry at large.In the latest Investment Trends Australia report, the firm found that “41,000 Australians traded CFDs at least once in the 12 months to June 2013.”

ASIC’s team of expert traders were fortunate enough to provide ‘its clients’ with useful hints and tips:

Consumer tips

To successfully trade in FX, you will need to have good knowledge of foreign exchange, leverage, volatility, the conditions of each country whose currency you are trading, and counterparty risk – knowing where your funds will be kept and the risk that an issuer will default on its obligations to clients, including failing to return client money.

It is very risky because:

• There are significant investment risks as currency fluctuations may move against you, causing you to lose money. Exchange rates are very volatile – they tend to move around a lot even within very short periods of time.

• Markets are open 24 hours a day, 6 days a week (due to time zones), so you need to devote a lot of time to tracking your investment.

• Currency markets are extremely difficult to predict because so many factors affect exchange rates.

• Even small market movements can have a big impact, because most forex trading products are highly leveraged.

• Risk Management Risk Management One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, most brokers employ a risk management department tasked with analyzing the data and flow of the broker to mitigate the firm’s exposure to financial markets moves. Why Risk Management is a Fixture Among BrokersTraditionally the company is employing a risk management team that is monitoring the exposure of the brokerage and the performance of select clients which it deems risky for the business. Common financial risks also come in the form of high inflation, volatility across capital markets, recession, bankruptcy, and others.As a countermeasure to these issues, brokers have looked to minimize and control the exposure of investment to such risks.In the modern hybrid mode of operation, brokers are sending out the flows from the most profitable clients to liquidity providers and internalize the flows from customers.This is deemed less risky and are likely to incur losses on their positions.This in turn allowing the broker to increase its revenue capture. Several software solutions exist to assist brokers to manage risk more efficiently and as of 2018, most connectivity/bridge providers are integrating a risk-management module into their offerings. This aspect of running a brokerage is also one of the most crucial ones when it comes to employing the right kind of talent. One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, most brokers employ a risk management department tasked with analyzing the data and flow of the broker to mitigate the firm’s exposure to financial markets moves. Why Risk Management is a Fixture Among BrokersTraditionally the company is employing a risk management team that is monitoring the exposure of the brokerage and the performance of select clients which it deems risky for the business. Common financial risks also come in the form of high inflation, volatility across capital markets, recession, bankruptcy, and others.As a countermeasure to these issues, brokers have looked to minimize and control the exposure of investment to such risks.In the modern hybrid mode of operation, brokers are sending out the flows from the most profitable clients to liquidity providers and internalize the flows from customers.This is deemed less risky and are likely to incur losses on their positions.This in turn allowing the broker to increase its revenue capture. Several software solutions exist to assist brokers to manage risk more efficiently and as of 2018, most connectivity/bridge providers are integrating a risk-management module into their offerings. This aspect of running a brokerage is also one of the most crucial ones when it comes to employing the right kind of talent. Read this Term systems, such as stop loss–orders, will only give you limited protection by capping your losses. You may have to pay a premium price to guarantee your stop loss order.

Regulators should assess the way firms are adhering to principles and rules regarding products that the watchdog governs, as opposed to finding a scapegoat in products.