It was recently suggested that traders should post templates for contacting their US Senators or Representatives about the CFTC/broker situation. An abbreviated copy of my email to my Senator is below. Perhaps it is too opinionated but I think that it is time to do something since the offshore broker list continues to shrink and now is down to 10 and headed to 0. Please comment if you feel that others should not use certain parts of it or if you like it. Thanks to Clint from whom I borrowed a few lines.
Dear Senator _______,
I am a cash foreign currency (or forex) trader and U.S. forex traders have been impacted a great deal by the CFTC, the NFA and in a few cases by the SEC since the Dodd Frank bill was enacted. I have no complaint about a specific incident but am unhappy with most of the restrictive actions by the Obama CFTC using the powers given by Dodd Frank, etc. with regards to available brokers, leverage etc. I personally feel that forex is being targeted specifically which helps US futures exchanges and brokers and US Stock exchanges. The Obama administration for instance has enforced transgender bathrooms but allows “sanctuary cities” to harbor illegal aliens. However I appreciate the work of the CFTC against futures or forex brokers, etc. who swindle traders.
The CFTC has reduced leverage available to traders to 50:1 compared to the 200:1 which was available here before 2008 and is still available in most other countries along with 500:1 or higher in some cases. It has been stated that currency prices don’t move as much as other tradeables such as commodities or stock indexes and thus higher leverage is used to make them profitable to trade. Traders are important since they add liquidity or volume to the marketplace and help facilitate transactions between banks and other participants in foreign exchange.
The CFTC has instituted a rule called FIFO (First In First Out) which makes no sense to anyone. This rule requires that if you place a buy trade in a currency pair and after the price rises if you buy another lot and price goes down you must get out of your First (profitable) trade BEFORE exiting the recent trade which is now losing money or vice versa for a sell trade; this just seems devious and other countries don’t have to put up with it.
The CFTC prohibits hedging which as defined in forex is to place both a buy trade and a sell trade in the same currency pair at the same time. The reason given for this restriction is basically that some traders are being taken advantage of by being convinced to do this. This is a strategy used to make money for instance when a temporary down move is expected during a buy trade which the trader doesn’t want to exit since an upturn is expected soon; so a sell trade can be added to make a profit during the temporary downmove without exiting the buy trade. Also some automated strategies will have both buys and sells in place as the market makes routine moves up and down. This type of hedging is perhaps more difficult to do in the competing futures and stock markets.
The U.S. government requires U.S. residents to report foreign based accounts which we hold but they cannot prevent us from having those accounts if foreign banks or brokers offer us accounts but they are often pressured by the CFTC overreach not to offer accounts to Americans. Likewise, of course, the American regulator the CFTC has no authority over foreign brokers who operate entirely outside the U.S. And under current law, the CFTC has no authority over individual traders who trade through foreign brokers that are beyond the reach of U.S. regulation. The CFTC however has implemented agreements with many foreign governments known as Memoranda of Understanding. These agreements have effectively extended U.S. regulation to cover U.S. residents doing business in countries which have signed the agreements.
There still are countries where these agreements do not (yet) exist but of course pressure is still exerted through the CFTC overreach. And there are a few offshore brokers, in Memorandum countries, who have the courage to defy the over-reaching U.S. regulatory authorities, and welcome U.S. residents as clients.
The CFTC has stated that any forex broker offering accounts to Americans must register with the CFTC and offer accounts to Americans only under the restricted leverage, no hedging, FIFO, etc. even if the broker is based overseas and has no offices in the USA. This makes no more sense than the U.S. Dept. of Transportation ruling that Americans driving anywhere including England must drive on the right side of the road!! But bureaucrats don’t have to make sense they just have to get appointed.
There are about 5 U.S. forex brokers which offer accounts to Americans under the restrictions some of which I have listed above. There about 10 brokers outside the U.S. which still offer account to U.S. traders and the list is shrinking. There are about 163 brokers which are available to the rest of the world which are unavailable to Americans because of the CFTC/NFA/SEC.
I think that the CFTC/NFA should get down to regulating and not going after offshore brokers who are not regulated by the CFTC or intimidated by their attempted overreach and offer accounts to US citizens who can legally put their money in any international account as long as they report income to the IRS and pay taxes and report offshore holdings in excess of $10,000 to the U.S. Treasury dept.
This is like the U.S. Joint Chiefs of Staff stopping Americans from joining the French Foreign Legion because they may be killed. Of course they may be killed they are soldiers for crying outloud. Forex traders may lose money but need the advantages offered by brokers abroad who are not restricted by the CFTC.
For instance we should be able to use German brokers as we could in the past who are under German regulations not the CFTC’s; it is like the government preventing us from buying German cars because we might get killed in a car wreck. I don’t think CFTC regulators are any smarter than German regulators or Swiss regulators, etc. but the Germans and Swiss don’t have a large futures industry. The large Swiss forex broker Dukascopy has a Trader of the Month award; in the past it has gone to former U.S. President Bill Clinton, Russian President Vladimir Putin, former U.N. Secretary-General Kofi Annan and French actor Gerard Depardieu. But just like me President Clinton cannot go online and open a Dukascopy account now.
Former CFTC member Democrat Sharon Bowen has described forex traders as “mom and pop investors” who are at risk of losing their money. They are not investors but are in the business of speculation which is the assumption of risk. Trading is a zero sum game; someone wins and someone loses. CFTC required disclaimers alert people to this. It is not like buying 100 shares of Apple stock and checking the price weekly.
There is a low success rate in futures trading as well as in forex trading but the CFTC is going after the forex industry which has advantages over the futures market. It is possible to have a lock limit in futures trading at the Chicago Mercantile Exchange when the price moves the daily limit but traders are not permitted to exit a trade; this may go on for days. I can see why the futures industry would be alarmed by competitors such as forex who do not have this disadvantage. Also I find forex trading much more user friendly and easy to enter and there is a global presence of forex traders online working together to become more knowledgeable. I notice that futures traders are not called mom and pop investors to justify regulation. Losing traders learn the business or get out.
The Japanese leader compares the global economy now with that of the pre-Lehman 2008 bankruptcy crisis; a credit collapse is predicted by writer Bill Bonner; a loss of the USD reserve currency status is predicted by Porter Stansberry and retired U.S. Congressman Ron Paul; this is the life of a speculator; we have to trade around the news events or with them which is a different trading style; we are not mom and pop investors and we don’t want our tax money which we must pay to be used by the CFTC/NFA to take away our tools in the meantime.
Senator I hope that you can prevent the CFTC from being one of the agencies which impose more unwanted stringent regulations during the last two months of the outgoing administration which often happens.
I see it as no accident that the world’s harshest forex regulation is found in the same country with the world’s largest futures exchanges and brokers; this I think is the motive behind what we see from the regulators; I have read that there is a revolving door between the futures exchanges/brokers and the CFTC; I have been a futures trader in the past and may be again in the future but I feel that the futures industry does not intend to take a back seat to anyone including the forex market which had been taking business from them for some time. Competition will occur but let’s not use the bureaucracy for this.