The Australian Securities and Investments Commission (ASIC) has reported a growing interest in foreign exchange (forex) trading among Australian retail investors.
In a recent speech, Cathie Armour, ASIC Commissioner pointed out that the number of retail clients trading over-the-counter derivatives has doubled in the last two years.
ASIC carried out a review in April 2019 and the commission found that there are more than 60 contracts-for-difference (CFD) and binary options issuers operating in Australia.
These are significant numbers which is combined with a high turnover rate. Records show that over-the-counter derivatives are moving $21 trillion in cash every year. The large volume can be attributed to the fact that there are a million investors in the market, with 99 percent of them being retail traders.
The 2018 numbers also show a staggering amount of transactions involving over-the-counter (OTC) derivatives. A total of 675 million OTC transactions were made with 60 percent of the deals being in forex products which is the equivalent of 426 million transactions. When you compare this number with the previous year’s 165 million FX transactions, you can really see how the market has expanded.
Forex products have been receiving a lot of interest lately and FX growth is much faster than other CFD or binary options transactions. However, forex trading has not dethroned CFDs yet from the top position. Around 39 percent of the revenue from trading comes from CFDs, while only 32 percent comes from forex.
ASIC Focusing on Forex
This increased interest in forex has caused the ASIC to turn its interest to the FX transactions market. The watchdog has noted a number of risks in the market which it thinks it should protect investors from. These risks come mostly in the form of high leverage, with some brokers offering a 400:1 ratio or higher. This is too much risk in ASIC’s opinion and measures need to be put in place to protect Australian investors.
In a statement, Armour said
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 ASIC has recently finished its consultation period for proposed measures to intervene in the market. It will review the feedback before trying to implement some measures to control the market.
