Australia Vs IC Markets: What Does It Mean? [Year, Month]

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Australian billionaire Andrew Budzinski, 49, founded the renowned Australian CFD and Forex broker IC Markets. He was 2024's 65th wealthiest Australian, with a net worth of A$2.71 billion, and faces two separate lawsuits that could cost him hundreds of millions of dollars if he is found liable.

Top Forex Brokers1 Get Started 74% of retail CFD accounts lose money

The secretive, little-known billionaire and IC Markets face a class action lawsuit for pocketing A$1+ billion in profits and dividends on the back of heavy losses by the broker's retail traders. An additional lawsuit charges Budzinski with violating Fair Work policies by berating staff using homophobic slurs, threatening to withhold salaries, and sacking the entire Australian office. The question is, do the lawsuits hold merit, and what might the outcomes mean for the Australian and global retail trading industries?

The second lawsuit, about Fair Work violations, targets the character of Budzinski in allegations made by a former disgruntled employee targeting Finohelp Support Pty Ltd., a support services company that assisted IC Markets with payroll. So, I will not dive into what may or may not have occurred, as it has no direct impact on CFD and Forex traders in Australia. The class action lawsuits should concern Australian-resident traders, however, as they could open the gates for more counter-productive regulatory changes, pushing Australia further behind competitive alternatives Should You Know Before We Look at The Allegations?

Between 70% and 90% of retail traders lose money, which has less to do with leverage maximums and more to do with a lack of market education, discipline, and knowledge. Regulators cannot force traders to acquire the necessary knowledge to trade more profitably, or to use proper risk management, or comprehend the relationship between risk management, position sizing, and leverage. So, they lower the maximum leverage as a blunt regulatory tool. This gives the illusion that the Australian Securities and Investments Commission (ASIC) is doing something that will lessen retail losses.

To be fair, lowering maximum leverage might slow down the pace of losing traders' losses. There has been data suggesting traders using lower leverage tend to survive longer. Yet it may be that serious traders tend to have bigger accounts and so use lower leverage anyway Are the Allegations of the Class Action Lawsuits?

The class action lawsuit against Andrew Budzinski and IC Markets alleges that retail traders were granted highly leveraged products without proper warning. However, the traders were all adults, and if they could count, were aware of the leverage which IC Markets was not forcing them to maximize.

The warnings were present, more prominent than those for casinos, cautioning gamblers of the risks incurred or those for lottery players, warning of the likelihood of total loss.

After Covid-19, online retail trading exploded, but not because new traders became seriously interested in trading. The surge came amid lockdowns, boredom, and a rise in social trading. It allowed new traders to deposit government checks into online trading accounts to play around. The gamification of trading is the core issue, not leverage.

Like many online companies, IC Markets profited from the surge, as thousands of new traders opened accounts, and, as expected, lost their capital. Again, this is due to a lack of market education and not the use of leverage. Still, the class action lawsuits claim IC Markets, under the leadership of Andrew Budzinski,“facilitated poor decision making and encouraged continuous trading” between December 2017 and August 2024.

Disgruntled investors, assisted by disgruntled employees led by former human resources manager Mayura Masti (her claims may have validity in the Fair Work lawsuit), filed class action lawsuits in 2023. They seek restitution worth A$948M, which is the total sum of dividends Budzinski paid himself in 2018 (A$$167M), 2019 A$359M), and 2020 (A$422M).

A spokeswoman for Budzinski stated that the claims championed by Masti were“not brought against International Capital Markets Pty Ltd.” She added that“the class action comprises an attack on the CFD industry (it is the fourth of such claims that have been commenced against major Australian CFD providers), and the claims are denied and are being vigorously defended.”The Twist

Andrew Budzinski relocated to the UAE after a brief stint in Cyprus. He owns 100% of IC Markets through his privately held holding company, Bud Corporation. He claims he is not employed by IC Markets and that his employment contract ended in 2017

Australia will continue to lose brokers, and IC Markets is a prime example of this trend. While IC Markets remains an industry leader and the leading algorithmic trading Forex broker with $1.3T+ in monthly turnover, it has not filed financial reports with the ASIC since late 2021.

Future regulatory actions resulting from these class action lawsuits are impossible to predict, but the likely outcomes are:

• Australia will lower leverage again (unlikely)
• Australia will ban leverage for retail traders (unlikely)
• Australia will consider educating new retail traders (possibly, but unlikely to result in quality education)
• Australia will require brokers to issue tests to new retail traders before receiving leverage (possibly)
• Australia will require the ASIC to issue licenses to traders before using leverage (possibly)
• No changes (most likely)

Forcing traders to use lower leverage might help them a little, or at least making sure that they have some idea of what they are doing before they use excessively high leverage might help them. We think further lowering maximum leverage is not a likely outcome as Australia already did this a few years ago. However, with the new Australian government taking a rather paternalistic approach towards most things, it is not impossible that maximum leverage could be lowered even below the European Union maximum, but the chance of that happening will likely be low even if the case against IC Markets succeeds.

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