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ASIC’s CFD product intervention order takes effect

ASIC’s product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients takes effect from today.

The order strengthens protections for retail clients trading CFDs after ASIC found that CFDs have resulted in, and are likely to result in, significant detriment to retail clients.

ASIC’s order reduces CFD leverage available to retail clients and targets CFD product features and sales practices that amplify retail clients’ CFD losses, such as providing inducements to become a client or to trade. It also brings Australian practice into line with protections in force in comparable markets elsewhere.

The maximum CFD leverage available to retail clients will range from 30:1 to a 2:1, depending on the underlying asset class. Before now, a retail investor’s CFD exposure could be as much as 500 times their original outlay.

ASIC Commissioner Cathie Armour said ‘We will closely monitor compliance with the product intervention order and won’t hestitate to take appropriate action to enforce the order.’

‘We are also paying careful attention to changes in CFD providers’ reported holdings of retail client money and any mis-classification of retail clients as wholesale clients, which would risk denying them important rights and protections. Protecting retail investors from harm, particularly at a time of heightened vulnerability, is a priority for ASIC,’ Commissioner Armour said.

The maximum penalty for a contravention of a product intervention order is five years’ imprisonment for individuals and substantial pecuniary penalties of up to $555 million for corporations.

If a court finds that a person has contravened a product intervention order, a retail client may recover the amount of loss or damage suffered because of the contravention.

The product intervention order will remain in force for 18 months, after which it may be extended or made permanent.

Background

A CFD is a leveraged derivative contract that allows a client to speculate in the change in value of an underlying asset, such as foreign exchange rates, stock market indices, single equities, commodities or cryptoassets.

Regulatory Guide 272 Product intervention power provides an overview of ASIC’s product intervention power, when and how ASIC may exercise the power, and how a product intervention order is made.

On 22 August 2019, ASIC released Consultation Paper 322 Product intervention: OTC binary options and CFDs (CP 322) seeking feedback on proposals to use its product intervention power to address significant detriment to retail clients resulting from over-the-counter (OTC) binary options and CFDs (refer 19-220MR). CP 322 attracted over 400 responses from consumers, consumer groups, product issuers, industry bodies and other stakeholders.

On 23 October 2020, ASIC made a product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients (refer 20-254MR).

In addition to the product intervention order, ASIC’s actions to address concerns about CFDs include:

  • enforcement action to address misconduct (for example, refer 21-051MR20-246MR, and 20-161MR)
  • public warning notices and other statements
  • surveillance projects and thematic reviews
  • stronger regulations
  • extensive retail client education campaigns and guidance for binary option issuers.

More information about ASIC’s supervision and enforcement work is available on our website. ASIC’s MoneySmart website has further information about forex trading and CFDs.

ASIC’s proposal in CP 322 to ban the issue and distribution of binary options to retail clients is still under consideration and a decision has not yet been made.

Money Management in Trading

Money Management in Trading

Money management is one of the most important part of building a successful investment in trading.

Money management combined with a successful trading strategy, it will enable the forex trader to eliminate the emotional and psychological aspects and to make money over the long term. A successful trader is actually a risk manager, and although we all think it is about entering a trade, managing it is far more important.

The most important reason you should have a proper money management strategy is to ensure that you can remain in the business long enough to become profitable, because when the money is gone the game is over. A good money management system can be applied to any trading method or strategy.

Most traders invest their energy and money focusing on the trading strategy and overlook the psychology of trading itself. This can be the hardest part to control, not just for new traders. But with the wright money management rules in place we can distance human emotion and will still have cash available for future trading opportunities. With that in mind, do not rush into trades, soon a new trading opportunity will come up.

The measure of your overall risk will be an important factor determining the limit of your trading position size. Never risk no more than 2% of your overall cash in any one trade.

Trading aggressively is the biggest mistake new forex traders make. If a small sequence of losses would be enough to eradicate most of your capital, it suggests each trade has too much risk. An approach to aim for the correct level of risk is to alter your position size to reflect the volatility of the currency you are trading. A more volatile currency demands a smaller portion of your portfolio than a less volatile pair.

The best traders make steady returns in the long run. These profits can become very large over the years, through the power of compounding. But you cannot get compounded returns if you quickly get out of the game. Realistic objectives and a moderate approach is the right way to start investing in foreign exchange.

One of the advantages of Forex trading, is powerful leverage ratios up to 1:1000 depending on your forex broker.  Leverage allows you to command an FX position that is much larger than the capital you deposit. This offers the chance to amplify profits made from the capital you have available. But it also increases your risk exposure. In other words – it allows you to ramp up the risk to get greater profits. This is a useful tool, but it is critical to understand the size of your overall risk exposure.

Your trading strategy will be determined by its performance in the long term. Do not worry too much for the success or failure of your current trade. Trading is not just about a successful trading strategy. It’s also about staying in the business long enough to allow your strategy to succeed.



Like all aspects of trading, what works best will vary according to the preference of the individual investor. Some traders are willing to tolerate more risk than others.

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