ASIC’s product intervention

Changes for retail clients: what you need to know

ASIC has changed the way we can offer our products and services to retail clients of our ASIC licensed entity. We’ve put together a summary of the main changes below to help you understand these and how they may affect you. These changes have come into effect.

Find out more about ASIC's product intervention here or you can always contact us at support@pepperstone.com.

Changes to leverage caps

A key change is leverage restrictions, which will affect the amount of margin retail clients are required to deposit to open any new CFDs or FX positions. Here’s what's changed from 29 March 2021, onwards:

• 30:1 leverage on major currency pairs
• 20:1 leverage on major indices, gold and minor currency pairs
• 10:1 leverage on commodities (excluding gold) and minor indices
• 2:1 leverage on cryptocurrency assets
• 5:1 leverage on shares or other underlying assets

Compulsory margin close outs

From 29 March, if the funds you hold in your account fall to less than 50% of the margin required for all of your open trades, then we'll be required to close out positions. 

Important: any existing positions opened prior to 29 March will also be subject to the new 50% margin close out requirement. This means that you may need to deposit more funds into your account to cover the additional margin required and avoid your positions being closed-out. It's your responsibility to be aware of your margin requirements and continue to monitor your positions.  

Margin close out: worked example 

You're trading AUDUSD and the margin currency is AUD. You have an account with a balance of $1,000 and you enter a trade of 1 standard FX lot ($100,000) at a leverage of 500:1 (before the ASIC changes take effect). The initial margin requirements are 100,000/500 (leverage) = $200. This is the amount you need to open the trade.

Currently, once the trade is opened, you are required to maintain a minimum of 20% of the value of the initial margin in your account, otherwise you'll be closed out, 20% of $200 = $40. If your account balance falls to $40 or less, the trade will be closed out automatically.

After ASIC's changes take effect, even if you opened the trade before 29 March, your equity will need to be a minimum of 50% of the initial margin, 50% of $200 = $100. This is a $60 increase from before the rules came into effect.

Let’s say the market unfortunately moves against you and you incur a loss of $910, meaning you have $90 of equity left in your account ($1,000 - $910) and your Equity/Margin ratio 45%, equity ($90) ÷ initial margin ($200) = 45%.

Under the current rules, your trade wouldn't be closed. However, under the new rules, your equity has dropped below the 50% requirement and your trade will be automatically closed out.

To avoid the trade closing out, you'll need to add additional margin to your account before the 50% close out ratio is reached.

Negative balance protection

We’ll provide you with negative balance protection to limit the losses you can incur when you trade with us to the funds available in your CFD trading account.

Prohibition on inducements

We're prohibited from offering certain inducements to retail clients (for example, offering trading credits and rebates or 'free' gifts like iPads). Discounts on costs and fees, educational tools, information services or research tools will still be allowed. 

Will I be affected?

The ASIC changes will impact retail clients only, not wholesale clients.

You may be able to become a wholesale client (or 'Pepperstone Pro'). It's important to note that you'll lose some retail-only protections if you become a Pepperstone Pro, so you must consider this in your decision-making. If you're interested in finding our more about becoming a Pepperstone Pro, please visit our Pepperstone Pro page. We’ve included a summary below of the eligibility requirements, but please refer to the Pepperstone Pro page for full details.

Am I eligible to become a Pepperstone Pro?

There are a few different ways wholesale clients are assessed but we use the term ‘Pepperstone Pro’ for clients who meet any of the tests and are approved.

There are two main ways you may be eligible for Pepperstone Pro status.

Sophisticated Investor Test1	Wealth Test2
Criteria 1 Demonstrate your knowledge by completing our short, online Knowledge Quiz	Criteria 1  Minimum net assets of AUD$2.5 million3
AND	OR
Criteria 2 You’ve traded leveraged FX or CFDs 20 times per quarter for at least 4 quarters in the preceding 2 years with a notional value of AUD$50,000 or more OR Work or have worked in the financial sector for at least one year in a professional position which requires knowledge of FX or CFDs	Criteria 2 Minimum gross income AUD$250,000 for each of the last 2 years3
If you’re eligible, it’s simple:
1. Log into your Secure Client Area 2. Select Pepperstone Pro in the top right-hand-side of the screen  3. Select 'Start Sophisticated Investor Application' 4. Pass the Knowledge Quiz, and provide evidence of your trading experience or sufficient work experience in the financial sector	1. Log into your Secure Client Area. 2. Select Pepperstone Pro in the top right-hand-side of the screen                                                                                                                                   3. Select 'Start Wealth Application'                         4. You’ll be asked to submit proof of eligibility as certified by your accountant

¹An eligible client that meets the requirements of the Sophisticated Investor test is someone who we believe has previous experience that allows them to assess:

• the merits of the product or service; and
• the value of the product or service; and
• the risks associated with holding the product; and
• the client's own information needs; and
• the adequacy of the information given by the licensee; and
• Requests that Pepperstone consider my experience for the purposes of becoming a Sophisticated Investor as defined under 761GA Corporations Act 2001 (Cth) (‘the Act’) by completing and returning the Sophisticated Investor Acknowledgement form.

²Clients that qualify as being treated as wholesale clients pursuant to section 761G(7)(c) of the Corporations Act 2001. 

³Accountants certificate - 2 year expiry

If you have any questions, please get in touch at pro@pepperstone.com.