Australian Forex Brokers Regulation: The ASIC Rules

Australian Forex Brokers Regulation: The ASIC Rules

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Financial regulation is probably the most important criteria, when choosing a forex broker. Almost all countries have some form of agency, which oversees financial markets and the major participants in them. A regulated company has to follow certain rules, imposed upon it by its regulator. Strictness may vary in different countries, but the reputable ones pretty much secure fair conditions for clients.

In this article we would like to introduce you to the Australian Securities and Investments Commission (ASIC). Australia is one of the major financial centers in the South-East Asia region. As such it is also a preferred destinations for legitimate forex brokers.

The main advantages of ASIC regulation are:

  • Segregated Accounts – when a client deposits money in a ASIC regulated broker, the funds are transferred to a so-called “segregated account”, which the company can not access freely. This implies the money can’t be used for advertising campaigns or paying employees or any other expenses. Of course it also prevents fraud by dishonest personnel.
  • Minimum Capital Holdings – as part of the application process a broker must prove they have a minimum of AUD 1 million in capital holdings. This is done in order to ensure the candidate has a long-term approach and capital adequacy. Historically this level was much lower, which attracted a lot of brokers.

After mentioning the positives of ASIC regulation, we should also list some of the practices imposed by other watchdogs, which ASIC does NOT apply:

  • No Compensation Scheme – this is probably the biggest difference between ASIC and other top-rated regulators. A compensation scheme is a mechanism which requires brokers to set aside part of their profits in a pool. This later serves to insure clients’ funds, in case the broker goes bankrupt.
  • No Anti-hedging (First In, First Out – FIFO) Rule – this is a regulation which states, clients can not have a long and short position in one instrument, at the same time. US regulators have applied this rule. This type of trading is sometimes called “hedging”, although this is not a proper use of the term.
  • No Limitation on Maximum Leverage – forex brokers based in Asutralia often offer leverage ratios as high as 1:500. As you may know high leverage can be very risky, if misused. Over-leveraging trades is the biggest mistake made by new traders, which often proves to be fatal for their accounts. This is why US regulators have limited the maximum a broker can offer to its clients, to 1:50. The UK’s FCA also has plans to implement a similar rule.

Here is a brief comparison of the most popular trustworthy forex regulators:

Regulation Segregated Accounts Guaranteed Funds Min. Holdings Requirement
FCA Yes Up to GBP 50,000 EUR 730,000
CySEC Yes Up to EUR 20,000 EUR 730,000
ASIC Yes none AUD 1 million

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