Would you mind if your fx dealer decreased available leverage?
With FXCM feeling the pain of negative trading account balances, it could have benefited from lower leverage levels available to traders going into last week. Javier Paz says in his book [The Forex Trading Manual](http://www.amazon.com/The-Forex-Trading-Manual-Rules-Based/dp/0071782923), that the worlds highest concentration of forex traders is in Japan. Japanese dealers are limited by law to allow 25 to 1 leverage for their traders. That 25 to 1 cap hasn't seemed to ruin fx there.
FXCM currently advertises "[I][you can trade forex with considerable leverage (up to 50:1)](http://www.fxcm.com/forex-basics/why-trade-forex/)[/I]". And after the swissie heroin overdose, FXCM offers leverage as follows:
AUD/JPY 40.5 to 1
AUD/NZD 40.5 to 1
AUD/USD 40.5 to 1
CHF/JPY 3.3 to 1
EUR/AUD 41.5 to 1
EUR/CAD 41.5 to 1
EUR/GBP 41.5 to 1
EUR/JPY 41.5 to 1
EUR/USD 41.5 to 1
GBP/AUD 44.5 to 1
GBP/CAD 44.5 to 1
GBP/CHF 4.5 to 1
GBP/JPY 44.5 to 1
GBP/USD 44.5 to 1
NZD/JPY 42.0 to 1
NZD/USD 42.0 to 1
USD/CNH 20.0 to 1
USD/CAD 50.0 to 1
USD/CHF 5.0 to 1
USD/JPY 50.0 to 1
What if they moved to 25 to 1? Would you care? Would that cause you to change your strategy or straight up prevent you from trading?
I personally would welcome the idea. I typically max my leverage out at around 20:1. I am currently about 15.5 to 1. And that is actually high because I am still in positions with sizes I put on before the Swissie panic came in and crashed on my couch. If my dealer lowered leverage levels to 25 to 1 I would not be effected at all and they would probably be more financially robust.
I don't advocate government regulation and I certainly don't support any statutory fx leverage cap. I believe traders and dealers should be allowed to set their affairs in order as they please and accept the losses or gains they incur without restraint from or imposition from others. Of course I believe that, I am an anarchist on acid.
Anyways, would you mind? Would you have to change your approach to fx if your dealer squashed leverage in half?
Yep it would affect me. If anything it would increase clients risk as it forces the client to expose greater capital in a deposit with a broker that is not FDIC insured. I use leverage as a means to have a smaller amount deposited with my broker, while having the rest in my FDIC insured deposit account at my bank. If leverage were to be decreased, I would then need to move the money out of my bank account and have it sit in a non insured forex brokers account which can go belly up at anytime, exposing my money to greater risk.
Clients should choose the leverage. Customers of FX should also understand the risks and what taking on those positions could potentially mean for their own financial position in life. It would seem that a lot of customers think that a stop is a finite point where they can limit risk. With that understanding they are able to take positions they are in no way able to afford to take in the real world.
I guess there is no need to understand risk disclaimers after all… No one seemed to read any of them.
I would not be against FXCM identifying a major risk event and limiting leverage on the one currency pair as some other companies had done prior to all this. They should be tailoring the company risk management system to the lowest common denominator and it would seem that it needs to be set on “DUMB” for some of us. Some people just straight out gamble and in cases like this where some risk could have been seen, steps should be taken to limit those people from exposing the company and through them, the rest of us to financial troubles. If leverage was set to 10:1 before this on the one currency pair, sure customers might have still lost out but I bet FXCM wouldn’t have needed so much of a loan.
Man, I love the concept and have considered it myself. It is a “Heads I win, tails they lose” sort of set-up. If the dealer gets trapped in an illiquid event, I walk away with my losses limited by my total deposit.
But if I am in many pairs, the broker could close out other positions I have in liquid pairs and gobble up the cash allocated there. To make this truly work for me while trading many pairs, I would have to get accounts with many dealers and trade just one pair with each. Hmmmm…
There is a misunderstanding about the leverage and you got it all wrong. Aside the trade size, the leverage also determines the margin requirements on most occasions. If the broker is giving you 200:1. the margin requirements will be very low even if no leverage is used. However, when it is reduced to 25:1 your margin requirement will spike. Why on earth would you want to increase your margin requirement? Also, FXCM announced it is raising the margin requirements even further ahead of the ECB meeting tomorrow.
Am I missing something with US FX accounts being structured differently to the rest of us? With mine in the T&C’s it says that if a position can not be closed in the event of a illiquid event happening that my account may loss all its deposit and I would also then owe for any amount over this until the earliest point that the position could be closed out on my behalf. Is it different elsewhere?
Got the same email from FXCM about margin requirement changes. GREAT too see!!!
So I am seeing reports of dealers that have " [I]forgiv[ev] all negative balances incurred by [the dealer’s] retail clients on January 15, 2015 where permitted by regulation[/I]" Forex.com issued such a statement. But will traders with negative balances actually be allowed to deposit cash into accounts with the same dealer and trade with it?
[QUOTE=“Arbitrager on Acid;678936”]So I am seeing reports of dealers that have " forgiv[ev] all negative balances incurred by [the dealer’s] retail clients on January 15, 2015 where permitted by regulation" Forex.com issued such a statement. But will traders with negative balances actually be allowed to deposit cash into accounts with the same dealer and trade with it?[/QUOTE] yes. The negative accounts are essentially given a “credit” to bring it to zero. Gain Capital is hoping that clients re-deposit and continue trading.
Required CHF margin is now 5% in the U.S. SEK and NOK are 3%.
I feared this would happen and was thinking about it last week the night BEFORE the depegging. Time to get it in before the government clamps down on my dream even harder.