Why Forex Brokers Love Calling Australia Home
The worldwide forex market is booming with the daily turnover doubling since 2007. This is no exception in Australia with Aussies loving a punt and making trades based on a knowledge gained over time. What is surprising though is that forex brokers absolutely love setting up shop in Australia. We delve into this phenomenon below.
High Leverage Is Allowed In Australia
Australia has high leverage forex brokers such as CMC markets which offer leverage levels of up to 500 to 1. The table below best explains leverage where for example, if you had $100 and could trade with a 500 to 1 leverage you effectively could be trading $50,000.
High leverage means the ability to make greater profits but of course also greater losses. The increased risk profile associated with leverage is why regulators in Hong Kong, Japan and the USA have chosen to cap it as low as 25 to 1. The ability not to be restricted to a leverage cap is therefore one of the key drivers to why forex brokers prefer Australian regulation.
Australia Has A Safe Financial Background
Australia has done extraordinarily well over the past decade weathering financial storms such as the global financial crisis and the Asian economic crisis. The financial sector’s ability to come through this volatility relatively unscarred has enhanced the countries regulator. Forex brokers that can therefore become Australian regulated not only have a leverage advantage but also gain credibility instantly.
This safe environment with sound regulation has been thrown into question recently however. In late 2015 and early 2016 the CFD and FX Forum which is an organisation set up almost exclusively as a Government lobbyist has been fighting hard to ensure proposed leverage limits are not imposed in Australia. Leverage offered by brokers, particularly offshore entities has sky-rocketed recently with some even offering leverage as high as a whopping 800:1! This is a cause for embarrassment for regulatory peers abroad are moving to thwart Forex companies offering whatever leverage ratios they like. All this being said, the Australian commission has a sound track record as a regulator and Australia is one of the most stable countries in the world to conduct business in.
It’s Relatively Straightforward To Receive Certification
Many forex industry expert feel that gaining a financial services license to become an Australian forex trader is relatively straightforward compared to some neighbouring countries. This is not to say the process is easier or that there are fewer requirements but the transparent process offered continues to attract FX Brokers.
In recent months, the Australian watchdog have made this process a bit more complicated vetting brokers who don’t have a true Australian connection and are really just operating overseas. This remains a topical area and was a core focus on a recent “Council of Financial regulators” meeting.
So Why Should Australian’s Choose An Australian Regulated Broker?
Australian forex brokers must have a financial services licence which are regulated by the Australian Securities and Investment Commission. This license places some unique restrictions and conditions including:
1) Segregated Deposit Account
Australian forex brokers must keep deposits in a separate account held within Australia. This is often a local bank account (eg NAB or ANZ). What this means is that the broker cannot place the deposit into the currency market pool and if the firm reaches financial difficult the deposits are safe from bankruptcy.
There are minimum training standards for staff and owners of fx broker firms set by the Australian government. This helps meet compliance requirements and helps ensure clients are educated on currency trading.
Like all companies in Australia, the Australian commission have strict requirements when it comes to the accounting and their regulation of fx brokers is no different. These firms must meet accounting compliance standards ensuring they don’t go rouge with their standards.
4) Risk Management Audits
The financial watchdog regularly audits brokers to ‘stress test’ them in different scenarios. It’s no surprise therefore that during the Swiss currency shock no Australian broker when into financial trouble unlike brokers overseas.
How Should I Compare Forex Brokers?
Obviously as outlined above, when comparing forex brokers it’s critical to first make sure they are Australian regulated. Once you have ensured the broker meets this standard it comes down to what you need as a forex trader. Some need a firm with high leverage, some focus more on the fees (including the spreads on offer) while others focus on technology and the platform offered. A good forex broker comparison is a great first step to success on the currency markets but training and development is just as important so make sure you learn from experts and past trades.