Australia Plans to Close Crypto Derivatives Loophole After Retail Traders Lost A$458 Million

Australia moves to plug crypto derivatives loophole

Australia's markets regulator proposed on Oct. 12 that retail investor protections be expanded to cover crypto-settled derivatives, closing a regulatory gap that has allowed similar financial products to escape the same rules.

The Australian Securities and Investments Commission (ASIC) said the change would apply to qualifying contracts for difference (CFDs) settled through digital assets. CFDs are agreements between a trader and a broker to exchange the difference in an asset's value from when a trade opens to when it closes, without actually owning the underlying asset.

The move follows data showing that 68% of retail CFD clients lost money during the 2023–24 financial year, with total losses across the broader CFD market exceeding A$458 million, including A$73 million in fees.

Key numbers at a glance

• A$458 million in combined retail CFD losses during 2023–24
• 68% of retail CFD clients lost money in the same period
• A$33 million in quarterly retail losses after protections took effect, down from A$372 million before
• 85% of retail clients trading CFDs over options lost money in 2023–24
• 28 issuers refunded over A$36 million after margin-netting concerns were raised

What the ASIC proposal says

Under current rules, CFDs are covered when settled in cash or through offsetting obligations between counterparties. However, derivatives with similar economic characteristics can settle through transfers of digital assets, potentially falling outside the existing regulatory framework.

ASIC wants to close that distinction by expanding the definition to include qualifying digitally settled contracts, regardless of whether their underlying exposure is linked to cryptocurrencies, traditional assets, interest rates or market indices.

The existing CFD intervention order expires on May 23, 2027. ASIC is proposing a further 10-year extension, which would keep protections in force until 2037 subject to government approval.

Impact on leverage and margin rules

For CFDs referencing cryptocurrencies, the current maximum retail leverage is 2:1, meaning investors must provide at least half the value of their positions as initial margin. Other contracts face different limits depending on the underlying asset, ranging from 5:1 for shares to 30:1 for major currency pairs.

The proposed expansion would depend on a derivative's underlying exposure and contractual structure, rather than automatically imposing the cryptocurrency leverage cap on every product settled using digital assets. Some fixed-expiry crypto futures and options would remain outside the framework.

ASIC is also seeking to tighten how brokers calculate initial margin. A sector-wide investigation found firms offsetting customers' opposing trading positions to reduce collateral requirements. Under the proposed clarification, brokers must calculate minimum margin separately for each CFD, preventing them from using one position to reduce collateral required for another.

Additional changes target CFDs linked to options, where losses have been particularly severe. ASIC is seeking evidence on contracts that could expose traders to losses exceeding the options premium, including structures with potentially unlimited downside exposure. It has yet to decide whether those products should face further restrictions or an outright prohibition.

What the data shows

ASIC Commissioner Alan Kirkland said existing restrictions had materially reduced investor harm, particularly by limiting excessive leverage. During the first six months after the protections took effect in March 2021, aggregate quarterly retail losses declined 91%, from A$372 million to A$33 million. The regulator also recorded an 87% reduction in quarterly margin close-outs.

However, subsequent reviews showed that most retail CFD investors continued losing money despite the protections.

What remains uncertain

The proposals are still under consultation and industry feedback could change their final scope. ASIC is seeking submissions from brokers, trading platforms and consumer groups by Nov. 9. The regulator has asked for information about which digitally settled products would be affected, expected compliance costs and whether firms would need additional licensing.

It is still unclear whether CFDs linked to options that expose traders to losses beyond the options premium will face further restrictions or be banned outright.

Why this matters for crypto traders in Australia

If the proposal is adopted, brokers offering crypto-settled derivatives to Australian retail traders would face the same leverage limits, margin calculation rules and promotional restrictions that currently apply to cash-settled CFDs. The changes would affect how much leverage traders can access and how brokers price and market these products.

What happens next

ASIC will review industry feedback submitted by Nov. 9 before finalizing the proposals. The existing CFD intervention order remains in place until May 23, 2027, regardless of whether the new rules are adopted.

Sources

• CryptoSlate