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The Japanese financial regulatory body, the Financial Services Agency (FSA), considers introducing a maximum leverage cap of 25:1 for corporate forex trading, Nikkei Asian Review reported on Wednesday. The changes are expected to be introduced no sooner than 2017.
Currently, there is no maximum leverage rate for corporate investors. However, there is a cap of 25:1 for retail investors who trade in forex.
The considered leverage cap will be introduced through legislative changes, which envision to set separate limits for trade in different currency pairs.
Leverage is a type of virtual borrowing that traders can get from brokers. It allows investors to operate with higher amounts and to increase their profit. High leverage means higher buying power and presents wider trading opportunities, but it also presents higher risk.
In most countries, there are no legislative restrictions regarding how much leverage brokers can offer their clients. Usually, leverage of about 500:1 or up is considered quite high. Recently, the number of forex brokers that offer leverage on the higher end has been increasing. FxGlory and FBS are the only retail forex brokers to offer leverage as high as 3,000:1, while Exness recently became the first broker to offer unlimited leverage.
However, in some countries there are certain restrictions on leverage, mainly for retail trading. In the US, for instance, the leverage cap is 50:1, while in Poland it is 100:1. Meanwhile, in Turkey trading accounts with balance of less than TRY 20,000 cannot offer leverage rates of more than 50:1 for trading of gold and popular currency pairs such as the EUR/USD, USD/TRY, and EUR/TRY, and the maximum leverage for other pairs is 25:1. Leverage for popular pairs traded via accounts with more than TRY 20,000 is set at a maximum 100:1, while for other currency pairs the cap is 50:1.
Source: Nikkei Asian Review