Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

ASIC warns retail investors of dangers in FX trading

There is much promoting to retail investors of the benefits of learning to trade foreign exchange. ASIC has warned of the dangers.

The FX market is a network made up of banks, central banks, commercial companies, fund managers, non-bank foreign exchange brokers and retail investors. This means that there are no exchanges for FX trading as there are with listed products such as equities.

The average daily market activity in April 2013 increased to $5.3 trillion up from $4 trillion in 2010. The UK boasts the highest global turnover at 41% with the US accounting for 19%. Japan, Singapore and Hong Kong SAR each have turnover of around 5% while activity in Australia is just under 3%.

Here is an extract from ASIC's website.

 

ASIC warns of dangers of foreign exchange trading for retail investors

ASIC today urged consumers to ensure they understand the risks of foreign exchange trading before putting their money on the line.

The warning about this complex investment comes after liquidators were appointed to GTL TradeUp Pty Ltd (GTL), a Sydney-based company involved in foreign exchange (FX or forex) trading. ASIC is investigating GTL and the circumstances around its collapse.

FX trading, which is becoming more accessible via electronic trading platforms, is when you buy and sell foreign currencies to try to make a profit. It involves speculating on the value of one currency compared to another.

It is normally conducted through ‘margin trading’, where a small collateral (property or asset) deposit worth a percentage of a total trade's value, is required to trade.

FX trading raises the stakes further by letting investors trade with borrowed money (leverage), but they are responsible for all losses, which may exceed their initial investment

‘Forex trading is complex and risky. Even the most skilled and experienced forex traders have difficulty predicting movements in currencies. Trading in international currencies requires a huge amount of knowledge, research and monitoring,’ ASIC Commissioner Greg Tanzer said.

‘Like any investment, it is vitally important investors fully understand what they are getting into, and FX trading is no different. Unless you fully understand what investment you are making and the risks involved with that investment, don’t do it.’

Further, ASIC has seen an increasing number of people setting up businesses that promote this type of investment strategy.

ASIC banned Robert Lloyd Wilson from providing financial services and have warned the public against dealing with him for his promotion of a program that showed ‘when to get in and when to get out’ of trades. These trades included, among other things, FX trades (refer: 13-282MR).

‘We will not hesitate to take action when we see people or businesses and their dodgy practices preying on innocent investors who may know little about these risky investments,’ Mr Tanzer said.

To successfully trade in FX, you will need to have good knowledge of foreign exchange, leverage, volatility, the conditions of each country whose currency you are trading, and counterparty risk – knowing where your funds will be kept and the risk that an issuer will default on its obligations to clients, including failing to return client money.

It is very risky because:

  • There are significant investment risks as currency fluctuations may move against you, causing you to lose money. Exchange rates are very volatile – they tend to move around a lot even within very short periods of time.
  • Markets are open 24 hours a day 6 days a week (due to time zones), so you need to devote a lot of time to tracking your investment.
  • Currency markets are extremely difficult to predict because so many factors affect exchange rates.
  • Even small market movements can have a big impact, because most forex trading products are highly leveraged.
  • Risk management systems, such as stop loss–orders, will only give you limited protection by capping your losses. You may have to pay a premium price to guarantee your stop loss order.

 

  •   21 October 2013
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

Behavioural reasons why we ignore life annuities

We need to talk about risk

banner

Most viewed in recent weeks

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

Warren Buffett's final lesson

I’ve long seen Buffett as a flawed genius: a great investor though a man with shortcomings. With his final letter to Berkshire shareholders, I reflect on how my views of Buffett have changed and the legacy he leaves.

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

13 ways to save money on your tax - legally

Thoughtful tax planning is a cornerstone of successful investing. This highlights 13 legal ways that you can reduce tax, preserve capital, and enhance long-term wealth across super, property, and shares.

Why it’s time to ditch the retirement journey

Retirement isn’t a clean financial arc. Income shocks, health costs and family pressures hit at random, exposing the limits of age-based planning and the myth of a predictable “retirement journey".

The housing market is heading into choppy waters

With rates on hold and housing demand strong, lenders are pushing boundaries. As risky products return, borrowers should be cautious and not let clever marketing cloud their judgment.

Latest Updates

Interviews

AFIC on the speculative ASX boom, opportunities, and LIC discounts

In an interview with Firstlinks, CEO Mark Freeman discusses how speculative ASX stocks have crushed blue chips this year, companies he likes now, and why he’s confident AFIC’s NTA discount will close.

Investment strategies

Solving the Australian equities conundrum

The ASX's performance this year has again highlighted a persistent riddle facing investors – how to approach an index reliant on a few sectors and handful of stocks. Here are some ideas on how to build a durable portfolio.

Retirement

Regulators warn super funds to lift retirement focus

Despite three years under the retirement income covenant, regulators warn a growing gap between leading and lagging super funds, driven by poor member insights and patchy outcomes measurement.

Shares

Australian equities: a tale of two markets

The ASX seems a market split in two: between the haves and have nots; or those with growth and momentum and those without. In this environment, opportunity favours those willing to look beyond the obvious.

Investment strategies

Dotcom on steroids Part II

OpenAI’s business model isn't sustainable in the long run. If markets catch on, the company could face higher borrowing costs, or worse, and that would have major spillover effects.

Investment strategies

AI’s debt binge draws European telco parallels

‘Hyperscalers’ including Google, Meta and Microsoft are fuelling an unprecedented surge in equity and debt issuance to bankroll massive AI-driven capital expenditure. History shows this isn't without risk.

Investment strategies

Leveraged single stock ETFs don't work as advertised

Leveraged ETFs seek to deliver some multiple of an underlying index or reference asset’s return over a day. Yet, they aren’t even delivering the target return on an average day as they’re meant to do.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.