Saxo Capital Markets welcomes ASIC product intervention powers and reinforces importance of responsible leverage

Adam Smith

Adam Smith

Saxo Capital Markets, the multi-asset trading specialist, has reinforced the importance of responsible leverage for retail investors trading in Contracts for Difference (CFDs) and Foreign Exchange (FX) in Australia, expressing concern that significant parts of the margin trading industry has not been sufficiently focused on protecting clients’ interests.

Saxo Group has a long-standing commitment to responsible leverage and client transparency. However, the firm has been concerned some providers still offer excessive leverage, resulting in the significant risk of frequent stop-outs, which leads to client losses.

The comments come as new laws have recently passed through Parliament allowing the Australian Securities and Investments Commission (ASIC) the power to intervene whenever there is a risk of significant financial damage to the consumer. The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) legislation has introduced product intervention powers for ASIC effective as of 3 April 2019.

Saxo Capital Markets Australia chief executive officer, Adam Smith welcomed the move by ASIC to enhance protection and bring Australia in line with other global markets.

“We look forward to seeing this new legislation being implemented in a practical sense, which will ultimately bring further protection for Australian traders and investors,” he said.

“While other major markets have moved to cap the amount of leverage brokers can provide to their clients for trading in CFDs and FX, retail investors in Australia are currently being offered leverage ratios as high as 500 times to 1 by major CFD providers, which means the client needs to put up only $1 to trade $500.

“This is an ultra-high-risk position because the underlying stock needs only decline by 0.2% for the clients to lose the amount they invested.”

In July 2018 the European Securities and Markets Authority (ESMA) imposed leverage limits on CFD and FX trading for retail investors in the European Union, bringing Europe into line with similar restrictions in Singapore, Hong Kong and Japan. Saxo Capital Markets offers 25 times to 1 on the Australian dollar, which is already in line with the ESMA standard.

“Saxo is committed to responsible leverage and client transparency in Australia and across the globe. We have been deliberate in taking a much more conservative approach than our competitors, keeping our clients’ best interests at the heart of everything we do,” he said.

Mr. Smith added that trading with CFD and FX instruments allows smaller retail investors to trade the full global macro cycle, build a diversified capital allocation, and hedge their market exposure in a flexible and efficient way – democratising access options, that have for a long time been largely reserved for institutional investors.

“Protecting clients while allowing them to take a responsible level of risk is important in all areas,” he concluded.

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