The Legal Status of Forex Trading in Australia
The forex trading environment in Australia is quite different from in other major financial markets like the U.S., Europe and India. For one thing, there are no limits on leverage in Australia, at least by the regulatory authorities. There are many other differences, but the bottom line for traders is that opening an account, and using it, is much less constrained for a Sydney-based entrepreneur, for example, than for someone doing business in New York, London or Kolkata. Two of the key areas of difference pertain to the use of leverage and the way in which profits are taxed. It’s probably on overstatement to say that the government regulations are unduly lax, but the way they handle the issue of leveraged trading is unique among major economies.
The nation’s government tends to let individual brokerage firms regulate forex trading, even though there are national laws pertaining to the activity. Compared to Americans and Europeans, for instance, Australians have taken to the foreign exchange markets with enthusiasm, and have been among the world’s most active participants in the segment for about two decades. There was a huge increase in interest in 2015, which was the year when the Swiss franc endured some wild swings and many made a small fortune off the volatility.
Since then, individuals who engage in casual trading have tended to gravitate to opening a forex account, much more so than citizens in Europe and the U.S. But because profits are taxed by the government, treasury coffers in Canberra make out quite well from a governmental hands-off attitude toward those at-home foreign exchange entrepreneurs.
If you open a brokerage account with an Australian firm and want to trade foreign currency pairs, you are limited to a $1,000 opening balance with plastic, so will need to use cash to begin with any amount higher than that. This is, in fact, one of the few areas where local laws are either as strict or more than in most of the other major global financial markets. National authorities in many nations impose credit card limits to deter new customers from doing all their transactions with borrowed or leveraged money.
There is no national law pertaining to the amount of leverage a person can use. That’s in stark contrast to all other major markets, where federal authorities not only set strict percentage limits but monitor them closely. What’s the catch? Australian brokerage firms impose their own limits, some of which are more restrained than others. In no case, for example, can an individual enjoy more than a 500:1 leverage ratio. Specific limits for accounts depend on each person’s credit history, time with a particular broker, and many other factors.
Citizens must not only report net profits but pay taxes on them. Because the practice of buying and selling forex pairs is so popular, the government enjoys a high stream of annual income from taxpayers who trade pairs in their spare time. The platforms themselves are also required to report individual account information to the national tax authorities as a double-check on accuracy and enforcement.