Starting on Monday 29, cryptocurrency traders in Australia would be able to trade digital assets with a maximum leverage of 2:1. The Australian Securities and Investments Commission (ASIC) has recently announced new restrictions for investors to reduce their losses while trading CFDs and digital assets.
Crypto Leverage to Be Reduced to 2:1 in Australia
Australia is the second-largest CFD market in the world. There are several brokers and firms that are offering users the possibility to trade a wide range of assets and this measure is certainly going to have an impact on them.
The new restrictions apply to different products and brokers in the crypto and forex markets. Thus, this is a measure that has an impact not only in cryptocurrencies but also in traditional and highly regulated markets.
Leverage is reduced by as much as 94% in some cases from a current level of 500:1 to 30:1. In some cases, the leverage traders could use got reduced to 2:1 as in the case of virtual currencies.
According to Compare Forex Brokers, the new rules would affect companies such as CMC Markets, IC Markets, eToro, Plus500 and even IG, among other brokers.
The most affected pairs include “exotic” forex currencies. Moreover, crypto CFD trading got reduced from 20:1 to 2:1.
It is worth noting that leverage has a strong impact on how traders behave. Indeed, there are periods of time in which cryptocurrency traders operate with massive leverage, creating massive losses as well. Thus, to reduce the risk that traders are now facing, ASIC decided to put in place the aforementioned measures.
Although traders would be able to reduce their losses, they would also not have the possibility to make extremely large profits. However, it is still possible for traders that want to get access to higher leverage levels to use overseas brokers and even unregulated brokers.
In this way, it is possible for users to still get access to large profits at a higher risk. Overseas brokers have yet the option of trading with higher leverage levels compared to Australia. Thus, this could also reduce the income for Australian brokers.
It is also worth taking into consideration that there are other measures that are being implemented by the ASIC. The goal is to reduce the overall risk for users involved in trading activities in the country.
For example, another measure that will enter into force on Monday is related to stricter trader protection regulations. Brokers will be required to separate clients’ funds from company funds. Brokers will have to use different (separate) bank accounts to hold users’ money. This is a very common practice in other jurisdictions such as in Europe.
The Australian Financial regulator is expected to analyze the market and the impact of these measures. It might be possible to see new regulations in the future considering that some of the proposals were not approved.