Francesc Riverola,
Hi everyone
If you disagree with the CFTC proposal to restrict leverage across the board to 10 to 1 leverage, you may submit your comments to
Include “Regulation of Retail Forex” in the subject line of the message and the identification number RIN 3038-AC61 in the body of the message.
Also, with the identification number RIN 3038-AC61, you can submit your comments by any of the
following methods:
• Fax: (202) 418-5521.
• Mail: Send to David Stawick, Secretary, Commodity Futures Trading Commission, 1155
21st Street, N.W., Washington, DC 20581.
• Courier: Same as Mail above.
All comments received will be posted without change to http://www.cftc.gov, including any personal information provided.
Francesc
I don’t know why complaining about this.
WHy would you allow a trader to trade with a leverage above 10/1? I personnally only take at max 2/1. Leverage is a nice thing if everyting works out fine. But given that they say 95% of the traders lose, for the majority of people leverage is a stupid thing. They will lose their accounts faster than they can transfer money.
Limiting the leverage will give these people a chance to learn more and save money.
I offcourse understand why the brokers and websites promoting fx trading like the big leverage.
The brokers make more money and if the brokers make more money they have more to spend on advertising.
I clearly know that some of the contributors to the itc’s and fxstreets webinars always stresses on keeping the risk small as this will give traders a chance to be longer part of the market and actually give them a chance to make money.
I know this is Rob Booker’s thought, Sunil’s, Sam Seiden.
Maybe looking at the rules at this way makes things more grey than just looking at them like they are black or white.
Their are country’s were speedlimits don’t exist.
Here in Belgium there are limits.
Is this something to complain about?
It would be nice to drive my Porsche at max speed without being fined, but would this be a good thing for the safety of myself and other people.
This is just my idea.
Peter
Dear Francesc:
I have just written an email to CFTC to record my protest over this rule proposal. The whole traders community should join hands to show their concerns. I would request all the fellow traders to protest this vicious rule proposal by CFTC.
Regards,
M Zafar Sheikh
Hi Peter
If you drive your Porsche at max speed, you are putting others live in risk. Limit speed must be limited and heavily fined.
Another thing is leverage. I think that limiting this is an attack to the rights of the trader and also is an attack to the right to compete for brokers.
I do think that leverage should have to have a top but it should not be too low to not let take risk to those willing.
What I think regulator should reinforce here is education and probably not allowing to use certain levels of leverage to those that are not ready yet.
Using your example, is like driving a car. In my country, to drive you must first attend a car’s school and practice at least 40 hours. Then you must pass a test and then for a few months you can not exceed certain speed limitations before becoming a driver with full rights.
Maybe this should be the way to do things right… don’t you think?
10 to 1 leverage is just fine. I never use 100:1
This sure can be a killer move for American forex. Thanks for your updates. I’ve echoed this post with the lobbying details.
I agree leverage should be linked on people’s skill.
The question is how to do this?
Compare it to a profesional poker player. He has the skills so don’t need to be protected. The holiday gamblers don’t know poker or wont have these skills.
But here’s the clue:of who makes the casino the most money?
OF who makes the broker the most money?
So brokers won’t care about the ” right” of traders of chosing there own leverage. They care about how fast someone can lose and add the money to the brokers account.
Maybe 10/1 is too low but a limit will not harm the majority of people.
Only the good traders, the small minority.
Everyone has the right to choose but sometimes other people need to limit this rights. But how to do this?
WHo know’s, i don’t.
Peter
Lower margin for smaller players means greater chance for a margin call. The brokers can benefit. Even if you are following good risk management, you will be forced to have more money sitting in a Forex account to take the same trade at the same amount of money at risk with the same targets. If you only risk 1% or 5% of your account on any given trade, it doesn’t matter what leverage you use.
I think it is important to look at an example of how this will impact the actual amount of additional money you will have to deposit in your account to trade just 1 mini lot. Below is a list of the current margin requirements (taken from an FXCM LLC account) at the current 1% margin level when trading a mini lot for the 4 major currency pairs.
Current Margin Requirement in USD:
EUR/USD: $160
USD/JPY: $100
GBP/USD: $180
USD/CHF: $100
If 10:1 leverage proposal goes into effect:
EUR/USD: $1,600
USD/JPY: $1,000
GBP/USD: $1,800
USD/CHF: $1,000
These are the amounts which would be required just to open one position. Not included are any additional funds you would need to have in your account just to avoid a margin call or allow for fluctuations if the trade goes into a loss.
Peter ,
In order to help somebody - you don’t need to limit the rights of people. That logic created quite a lot of issues in the history already. Who is watching the watchers?
There are number of ways to check whether a person has gone through number of checks before he is allowed to use high leverage. Driving license tests are just one analogy.
The think which I cant understand is - what is the trigger for this? Economic downturn ?? - Was retail trading ever listed as one of the reasons for economic crash. Is the reason that more and more people trading the currencies are actually taking the control of currencies valuation away from authorities. That could be a problem but still that can be handled at the broker level rather than at the retail trader level.
Peter,
with all due respect, I strongly disagree.
” Everyone has the right to choose ( individual rights ) but sometimes other people need to limit this rights ( collective rules ).”
Does this intiative to change the ” rules ” come from a democratic free discussion of participants or from a government-related ” higher ” body ?
Forex and other financial products like Futures and Options are THE epitome of risk-taking and free capitalism.
I have been trading for more than 15 years, 7 yrs in Forex, and from the beginning with 100:1 leverage.
And yes, I think that leverage is the key to get rich.
And yes, I think that being wealthy is actually good, for me and for others.
- you can use leverage in financial trading to compound equity faster.
- you can leverage mass-distribution means ( printing of CD`s and production of videos ) to reach a larger audience as a musician.
- you can leverage knowledge of others who have spent years in the field of your interest ( forum, boards ).
Maximum leverage is important.
=======================
I recommend reading R. Kyosaki ” Rich Dad, poor Dad “.
What is happening ? I thought there is an outrage of traders, now we have semi-moral discussions ?
I love Forex.
I love Leverage.
Losing money is wonderful, a great lesson.
Making a ton of money is wonderful, a great lesson.
I have known poverty in my life during childhood, the problems of my parents to make ends meet, and worked in a job for less than 5 EUR (hr ).All night long, for years, to finance my student life and my rock music.
I enjoy trading 5 standard lots at 100:1 for 20 pips per trade.
I surrender emotionally to my losing trades, go through the torment and transform it to humility and precision.
I enjoy spending my money for myself.
I enjoy giving money to projects like ” Medicins Sans Frontiers “.
I would never buy a Porsche, because it is a consumer product rapidly losing value.
But I would invest in real estate or other businesses that produce real value.
I forgot this :
http://www.youtube.com/watch?v=OLN2k0b3g70
Everyone have a nice weekend, and leverage the little time during these 2 days to the MAX with your loved ones…:-)
This is a trader who trades with 100:1 leverage :
http://www.youtube.com/watch?v=WYeDsa4Tw0c
10:1 may work for some (or even few) and experienced traders where their trading system works with this type of leverage. Unfortunately, this is not going to work for others. BTW, cars are not the same trading money. Cars can kill. Trading does not. It is not a right analogy.
I’ve been trading in Forex for 7 years very successfully, but I rely on 100:1 leverage, and I make a living for it. I have decided to open an account outside the US in case this regulation passes. I will transfer my money days before this regulation will be implemented.
This move is killer and takes away freedom. This move comes on top of one which we are already suffering of leverage down, margin up and position clearing as FIFO. This is a freedom elimination process which is not good. I agree that low leverage would be safe for some traders but it is not true for most of them. I strongly disagree with 10:1 idea.
10 to 1 will kill the business in the United States, most traders don’t have such a capital to trade 10 to 1 they will close their account or they go offshore. Bottom line it is a stupid idea.
Peter
hahaha Who has told you that the broker makes money when you lose? you are not even aware of the basic system of forex! brokers always win weather you lose money or win money they always charge you the spread which is their profit. You even don’t know these basic things and saying that you have s much skills that you are not afraid of losing money. Please Val confirm this that brokers don’t make money when we lose. instead they make money by spreads.
And if you want to trade with a leverage of 2/1 you can do this when you have a 100:1 leverage by increasing the lot size so that your margin requirement reaches to this level but you can not trade 100:1 when there is a limitation of leverage to 10:1.
Hi Peter,
I believe Rob Booker moved his accounts to the UK where they offer the most leverage, and in his webinars he says he prefers the highest leverage possible. Why put up more money than you have to?
————————-
CFTC 10:1
Putting a large amount of money in a US retail forex broker is risky in itself, if they file bankruptcy you lose your funds because the US bankruptcy laws are set up to where the creditors get paid first and account holders get whats left over which is probably little if anything at all.
I only keep 20% of my funds allocated to forex in my trading account, just in case I happened to pick the next refco. Now I will have to keep 10 times that amount in my account just to trade at my current level.
Sir Francesc Riverola,
Great Job! Thank you so much!!!
Jason Rogers, your calculation is wrong. We are talking about US based firms. They currently aren’t allowed to offer Mini accounts. Only standard accounts offering 1:100 leverage. What the current argument is about 1:10. So for example margin for 1:10 USD/JPY is $10,000. It is $1,000 on 1:100 leverage as per current NFA ruling. None of this is relevant if you are moving to a UK based firm where FSA clearly is ruling with ton of more common sense than US counterparts. So, it is simple. Get ready to move to a UK based firm or US firms with UK subsidiary. It is that simple. Let our useless US regulatory bodies ruin US forex companies. US based forex companies will be the first to line up to yell at them. Let them ruin US forex firms. Just let them.
Let’s just cut to the crux of the matter. It has nothing to do with anyone’s successful trading methodology. You simply won’t be able to make the same decent amount of earnings in forex with 1:10 leverage unless you have well over $100,000 in your account unless you will now risk 50% or more of your account balance to eek out a decent earnings with a decent lot size with a pitiful 1:10 leverage. Some people clearly are not thinking like Peter before opening their mouth unless they are some shrill of NFA and CFTC. The margin requirement of USD/JPY at 1:100 is $1,000 but at 1:10 it is $10,000. And that is the only argument one should make here. It does not deter fraud, it does not make trading safer, and it does not increase business. Simply, smart traders will move to UK and retards will risk more. Wow… that certainly solved the problem eh? F’ing morons at NFA and CFTC.
I reread Peter’s comment and his rather infantile elementary thinking makes me really laugh out loud.
Lets not forget that its One hundred senators, 435 congressmen, one president, and nine Supreme Court justices equates to 545 human beings out of the 300 million that are directly, legally, morally, and individually responsible for the domestic problems that plague this country. Thanks for your updates. I will echoed this post with the lobbying details in hopes of getting the word out.
To Peter. You clearly have zero understanding of anything muchless forex. Yes, keeping risk small is fine but risk has nothing to do with leverage. Reread this. If you do not comprehend this, you need to leave the forex arena rather than come into investment forums and pretend to know something when clearly you do not. Nobody is telling people to risk 50% of their accounts with leverage of 1:100. But you wait and see, people will risk more with 1:10 leverage. Smart experienced traders will simply go to UK. And the dumb retard inexperienced traders will simply risk more and get a margin call on every single one of their trades with 1:10. Your thoughts are truly laughable.
Peter’s comment is just outright false and plainly stupid. He is confusing RISK with LEVERAGE. 95% of traders lose? And you think leverage is responsible or high risk is responsible? They are losing because they lack the knowledge and lack experience and because they risk too much. These people will actually lose more and lot more quickly with a leverage of 1:10. Why? Because they simply won’t realize that opening up bigger lot sizes will result in risking substantially higher percentage of their account balance than they were using when using 1:100 leverage because on 1:10 more margin will be required NOT LESS!!!!! Since all of these newbies can’t even properly calculate the proper risk in the first place, they will simply open up same lot size as they did when on 1:100 when and if 1:10 rule is enforced. Simply, most of their trades will end up with a margin call and most of them will be scratching their heads and yes, they will complain to NFA and CFTC. High leverage is not high risk. High risk is high risk. High leverage simply allows less of your money to work more for you using the same risk percentage. Clearly, Peter, you know absolutely nothing. And people who know nothing should shut the hell up. And brokers, whether there is a dealing desk or not, make money from the spreads and or commissions on ECN and other institutional platforms. They don’t trade against you and they don’t stop-loss hunt. You are too miniscule and pathetic for huge firms to just target you. And it would only work if they are feeding you false price feeds to your platform. OK? Stop eating up BS myths spread by the real losers and failures of forex market. Risking high percentage of your balance results in failures and margin calls, not high leverage. No matter what your leverage is, if you risk less than 10% total on your trades, and make sure you always stay under 10% total, you will always be safe. You think risking more on a 1:10 leverage will keep you safer? 10% is 10% no matter what your leverage is!!! Only difference is that with 1:10 leverage, far more of your money is working on your behalf and more margin is required. On 1:100 leverage, far less of your own money is working more on your behalf with far less margin requirement. I suggest that you chew this over before you spew some more bizarre classic newbie nonsense. Let’s go over this again… 10% is 10% no matter what leverage you have. But on 1:100 leverage, far less margin requirement is needed meaning you get more bang for your buck. I surmise that if 1:10 goes into effect, most retail traders will only be able to make $1-5 per trade seeing most traders’ deposits are far below $2,000. You won’t be able to do crap with a $500 balance unless you are willing to risk nearly 100% of your account balance making margin call more certain with every one of your trades. 1:10 leverage will make margin call a certainty unless you have a huge balance. Now, if you want to play games making pennies to couple of dollars, why then 1:10 is a welcome site. People came here to forex precisely due to leverage offered in futures trading especially in forex. What’s next? 1:1 leverage? Only the wealthy will be able to participate and make money. Most traders will only be able to make a few dollars per trade if 1:10 becomes reality.
Exactly what Lee said- I agree 100%. Risk is Risk, no matter which way you slice it and how much leverage you use. If you risk anywhere from 2-5% of your account, preferably 2%, meaning that you only stand to lose 2% of your margin deposit, that is a 2% risk. If a trade goes sour and believe me YOU WILL have losses, you can stay in the game much longer than a foolish noob who risks around 20% and uses improper risk to reward ratio. This new ruling will only serve to keep wealthy traders in the forex game- a reversion to how forex used to be with multimillionares only in the game. You can lead a horse to water but you can’t make it drink. Just because the government places a bunch of signs pointing to a water source and restricts horses from running away from it, doesn’t mean that the fucking horses are going to drink the damn water!
Limitting leverage protects traders ~ dubious, more that it will dramatically reduce the wiggle room in any given trade for a retail trader. An undisciplined trader will still loose money with 5:1 nevermind 10:1, you cannot protect those people other than by telling them to either learn or leave the market. But for traders who have a bit of experience, this will only serve to needlessly limit gains when they have put in the work and the time, and keep their emotions in check. Essentially this is big government dictating what individuals can do with their money.
lower leverage has been in canada for some time and works fine. Companies like IBFX, FX solutions etc.. are well known as bucket shops and this rule should get rid of these snakes once and for all that make money off the less educated with false promises and wide spreads
After all is said and done most of the these small USA brokers will be gone and only the bigger retail brokers will be left which is best for all.
Glad to see them go!
If it gets rid of the bucket shops
This rule is inappropriate for many reasons.
First, it will serve to push small traders to offshore brokers that are completely unregulated. While I agree that bucket shops are disgusting, at least they’re subject to some regulations and to maintaining required financial reserves if they operate in the US.
Second, it doesn’t protect people from losing money. I think many people who try to trade should not be trading but the fact is that you can’t protect people from losing money. This rule will only serve to encourage those who are bent on trading to fund their accounts with greater amounts of money rather than less. As a result, they’ll be able to lose more money.
Third, the rule works on the assumption that small traders are more risk taking than larger or more sophisticated market participants. As I wrote in my response to the CFTC(you can read the email I submitted to them at my blog http://forexreflections.blogspot.com/2010/01/protest-against-proposed-cftc-rule-to.html), research has found that risk taking and poor money management exists at all levels of market participants. Exactly how did we get in the financial crisis of 2008 if it wasn’t because of poor risk management on the part of large banks? You can say they can afford it but the reality is that the public bailed them out.
Finally, for the successful small trader, it means you’ll be unable to take as many profits out of your account because you’ll need more money to cover the higher leverage requirements.
A better approach would be to require some sort of certification process for small traders. They could be required to study at least risk and money management and take an online exam before being allowed to open a broker account. I don’t really believe this would help a lot (it’s one thing to learn something and quite another to apply it) but it would be better than this rule.
Dianne Fecteau
Chartered Market Technician
The only people theyll hurt is the small trader. Anyone who has any sizeable money could easily just move his account offshore and be exempt, it would be no than a trip to the post office to drop off his application to the foreign broker.
More “bucket shop” arguments from pretenders pretending to be traders. That is not the issue here so stop your pretension at some expertise and shut the hell up! 1:10 leverage will now get rid of “bucket shops” even if they are incredibly well capitalized? 1:10 will bring a huge loss in revenue to every single US based forex firms not just what pretenders consider to be bucket shops. What the hell is a bucket shop anyhow? Firms losers and morons bitch and complain about on worthless forex forums that we all know about where losers congregate to pass on myths of trading? Eh? Of course. The point here, worthless pretend traders, is that 1:10 will make forex trading for vast majority of traders impossible due to high margin requirement that will be brought forth by 1:10 leverage. And this is why most people including the brokers are angry. It will drastically limit their retail customer base and it may shut down most of them. IBFX is very well capitalized… well enough so that nothing will stop them from closing down their US office altogether and going to Malta or UK. Only US loses out… US retail customers, foreign nations who have US forex based accounts opened, and the US based forex firms who will now lose a ton of customer base because a deposit of $500 won’t do crap for them. Are there only morons and pretenders in the forex arena? I think this is clearly the case including the retard regulators.
Lee get your facts straight IBFX is not well capitalized and is a tiny retail shop. Look them up on the CFTC web site. Without outside investors they would already been shut down.
20-30 million is nothing for net cap and the next likey move is to put the net cap up to 50-100 million if the 10:1 leverage does not pass.
Either way this bucket shop should be gone!
if a firm does not have at least 100Million in net cap I would stay as far away from them as possible rigth now
I have moved my account to UK.
10:1 will not work with my style and method of trading which I have been using for 7 years. If 10:1 works for others, good for them, but I have bills and mortgage to pay, and kids to send to college.
For me, it bothers me as to why they came up with this 10:1 leverage, even though it is only a proposal. But anyway, good luck to anyone on 10:1.
I am from Saudi Arabia and I had an account with FX broker in the US for sometime, since there are no similar providers (brokers) in my country. I used to fund this account regularly to continue trading. However, since new CFTC began imposing new regulations and rules for the FX industry, I immediately moved my account to Australia, and until now I continue trading with the same old rules.
CFTC should understand that even if they impose new rules and regulations, this is what is going to happen. People will continue trading FX from other locations. This decision will only reduce employment in the US, and move capitals to other nations.
Chris,
Most retail brokers do make money when you lose because in most cases they are the counterparty to the trade contract on top of the spread. Depending on the circumstances they can keep the contract in house or pass it off to a liquidity provider. There are some that use straight through systems that connect you directly to the liquidity provider but that is rarely the case. You have to read the fine print to see how it is handled with your broker. I strongly disagree with this proposal on principle. People need to be free to choose and make their own decisions, good or bad. While 10:1 leverage will be just fine for me it will force a lot of business out of the US, and effect smaller traders with much smaller risk capital. I already moved my account to the UK after FIFO, and I can imagine if that wasn’t enough for some people this will be the proverbial straw if passed.
I’m Foreign trader with FX account in US. Not only will this new proposal cause outflow of US - traders’ capital but also those of international traders with US accounts. A brokerage is a business and if you are not competitive you will lose your customers…
Of course brokers make money when you lose and they also make money when you win. THEY MAKE MONEY SIMPLY BECAUSE YOU TRADE. Stop posting nonsense that is not related to 1:10 issue on here. Way too many misinformed traders think that brokers make most money when you lose. They make money no matter what as long as you TRADE!!!!!!!!!!!!!!!!!!! No dealing, dealing, straight through… all irrelevant issues to truly successful informed traders!!! More bad thinking. 1:10 will force what out of where? I think NFA and CFTC retards are on here posting utter nonsense. It really won’t affect huge retail brokers all that much in the short term, but it may crunch them in the long term when retail customers start moving abroad with their funds including the wealthy traders. When wealthy depositors start moving, then US froex firms will all start crumbing OR as we have all seen, they have all been waiting for this day after the anti-hedging ruling. Most current US forex firms have or are getting ready to open up UK or EU subsidiaries. Only the retards at NFA and CFTC lose out. I say good job useless morons!!!
@Jonny
Your statement that US based firms do not offer mini lot trading and are not allowed to is incorrect. In fact some offer as little a nano-lots in the case of Oanda. All lot sizes for US based brokers will be affected by the 10 to 1 leverage proposal if it is enacted whether it be standard, mini, micro or nano.
The numerical example I described can be applied to standard lot trades by increasing the dollar amounts by a factor of 10 since a standard lot is 10 times the size of a mini lot.
Jason
I would recommend writing to the CFTC with a brief comment on the matter. Posting here is good, but whatever your side is, let them know.
NO TO ,RIN 3038-AC61 “Regulation of Retail Forex” , THE RISK TAKEN BY ANY PERSON IS CHOSEN BY THEMSELVES, IF A PERSON IS OF DANGER TO THEMSELVES, THEY CAN ALSO LOOSE MORE THAN THEY WANTED EVEN PLAYING BINGO, THE LOTTERY , TRACK RACING, CASINOS, ECT. DO NOT SUPPORT ANY MEASURES TO REDUCE THE LEVERAGE THAT IS AVAILABLE TO ME, I CAN REDUCE THE LEVERAGE VERY EASILY TO MY ACCOUNT SIZE, AND I WANT TO TRADE ANOTHER DAY, AND ANOTHER, AND ANOTHER, DON P.
I don’t see why it needs to be regulated, if somebody is willing to provide 100/1 and somebody is willing to take it why do we need the gov’t to say they cannot?
I think the people running CFTC have gone overboard. They are trying to limit the FOREX market by eliminatine the little guys like myself who are trying to learn forex trading without risking a lot of money through margin requirements. They would do better by regulating the so called IB experts/gurus like the one that lost a few thousand 3 years ago for me through margin calls on a losing wheat contract..This is just like the FIFO reg that sent me overseas for awhile.I’ll probably transfer my current account overseas after thie fiasco.
The proposal is simply ludicrous. Everyone will be inversely effected over the long run
I grow increasingly tired of organizations trying to babysit everyone. Some people actually know what they are doing!
I am Canadian and have account in US and if 10:1 comes to play I will be moving out and this is my notice to CFTC. I am a part time trader which means part of my mortgage is paid by trading. I am not a milionaire but learned the skill to make a use of small amount of money to gain some freedome in my life and now they want to take it away. If CFTC does not back of from this one, US will loose a lot of cash. Is US going down?
The CTFC changing the leverage limit to 10:1 is bad for equality. To say that traders need to be protected from themselves is a very poor excuse. We need protection and regulation on the big banksters, not us!
This takes away both competition in the market, and the ability for the little guy to have a chance at the market working for them.
Why is the Forex market being targeted anyway? This market is the least of the issues that are rampant in the trading and commodities markets. It’s just an easy target! This move is similar to the Bush administration saying that McDonald’s and Burger King, and other fast food stores are in the “Manufacturing” sector to make it look as though manufacturing in the states was on the increase. It was BS then, and this is BS now!
Stand for what is correct and was is equal. If you don’t have the means, then don’t trade forex, but don’t allow rules and regulations to be put in place to make it seem like there is something being made better for the suffering little guys.
This new limit SHOULD NOT BE ALLOWED by WE THE PEOPLE…
Period.
Many are making a false correlation. The extremely high % of losing traders has nothing to do with leverage. We simply do not know how to trade, and no newbie has the proper psychological training, which is, by the way, the #1 predictor of success. Money mgmt skills are critical, too, but without being able to control your emotions, you’ll never last long enough to ever hone other aspects of trading.
Making a correlation with causation between industry standard leverage and the ~95% losers is akin to making weight loss the reason for someone getting cancer. I margined out when I started (30:1) trading. Guess what happened when switched to 100:1? The leverage had nothing to do with my (small) success after a full year of trading. What it did for me was provide a little more peace of mind being able to keep a smaller acct bal with a Forex broker, which is, by their nature, a very high risk business.
How many brokers have imploded over the past years? What’s the avg life span of a Forex broker? How many Forex brokers are transparent and ethically run businesses? Answer these questions and you will then understand why high leverage isn’t just a nice toy to play with, it’s mandatory.
What the industry needs is to get away from any US gov regulatory oversight – they are highly suspect and ineffective anyway – and let third, independently audited, party spring to life and provide the community with fair broker ratings and risk of failure analysis. Give us of the data and let the market flow to best brokers.
There’s no better regulation than increasing one’s profit margin by acting ethically and providing transparency.
If the CFTC is really concerned about protecting traders, and this isn’t just another political stunt, here’s a simple solution. The CFTC should require all brokers to offer micro contracts (10 cents), as well as the regular mini and standard contracts.
Peter et all who supports this rule,
We know that high leverage is very risky and will wipe of anybody’s account sooner than they think (or blink), unless proper mitigation steps are taken. But just that you know by this rule they are not reducing my risk, but rather increasing it. Earlier I could trade a standard lot with 1000$ now with this rule I have to have 10000$ with the Broker for the same standard lot, thus making me risk more of my REAL MONEY. The worse part is I cannot take calculated risk anymore, as every additional standard lot will cost another 10000$ of my REAL MONEY.
Even a pre-school kid can tell that the real way to protect retail traders is to restrict the % of money/margin at stake per trade (say traders cannot stake more than 5% of their margin for a single trade). Thus it becomes my prerogative to understand the risk and increase the margin if want to take more risk and not the government’s.
The problem with 10 to 1 is that you still need money to trade with thus reducing your leverage to ~ 8 to 1.
I use that kind of leverage anyways but what if I was in profit by 320 pips and wanted to risk my profit by doubling my position? I would have a ~ 120 pip cushion and it wouldn’t destroy my account if I lost it. An additional 320 pip gain would amount to an additional 640 pips for a 960p gain (+76.8%).
Alas, my leverage would need to be significantly higher than 10 to 1.
My point is that not everyone uses 16 to 1 or higher leverage right off the bat.
And so what if they were?
What if a trader is using 25 to 1 but only deposited 20% of his risk capital into his trading account?
Say that this trader went as far as to use a 40 pip stop for a 10% trade risk!
Would he not be risking 2% of his risk capital even though 80% was not deposited?
If the CFTC is to “protect” us from ourselves then they need to know how we trade and what are total risk capital is (as if that is any of their business!).
I wonder why the CFTC does not see that it is the responsibility of any aspiring trader to understand margin and leverage before trading the forex market.For those retail traders who have worked very hard to succeed in this market limiting leverage would kill their hard work and prevent them from making the most of their potential.
Here is an unpleasant observation: your mother, the CFTC has declared that you shall not use more than 50:1 leverage with majors, which is to say that you need 2% margin; however, they have not made the distinction between initial and maintenance margin (your mother’s no genius in this case).
Typically, brokers offer maintenance margins that are 2x the maximum initial margins. As far as I know, MB Trading (and now Interactive Brokers) are the only brokers that impose a maintenance margin EQUAL to the initial or opening margin.
So, will rules continue to allow 1% maintenance margin or will that also be set by law at 2%? If it is, you will get margined out of a 50:1 position immediately should price go against you by even the tiniest amount. To have the same draw-down capacity as before, it will be necessary to open positions with at least 4% margin.
For all practical purposes, your real leverage will become 25:1!
Does anyone know what the real story is?