The March issue of Currency Trader magazine has a 1-page article on the current CFTC proposal to limit retail forex leverage.
I have copied and pasted the article, because I was not able to attach the entire magazine as a .pdf file.
Currency Trader magazine is a free e-magazine, distributed by email to subscribers.
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Forex traders voice their opinions
Don’t punish us for the sins of others, forex traders argue.
BY CURRENCY TRADER STAFF
As of March 1, the Commodity Futures Trading Commission’s (CFTC) “request for comment” regarding its proposed 10:1 cap on forex leverage triggered more than 5,700 responses, virtually all from private traders and forex industry professionals irate about what they see as an unnecessary and intrusive regulation.
Although many responders voiced a concern the CFTC’s move would drive business out of the U.S. and eliminate American jobs at a time when unemployment is around 10 percent, the primary theme running through the responses appeared to be: “Our risk is our business, not yours — butt out.”
“Please leave well enough alone,” Nancy Cunningham wrote. “The proposed limitation will shut down legitimate, knowledgeable traders with small accounts. Ultimately, limiting leverage in the forex [market] will not protect the gamblers and the people who are fools with their money. The gamblers will continue to gamble; they’ll just do it elsewhere. And fools will still lose money, but somewhere else, like the pink sheets.”
Hugh Kimura sounded a similar note. “I realize the CFTC’s intent is to try to protect retail traders from using excessive leverage, but the truth is that even with no leverage (like in the stock market), traders who do not use proper money management will still lose money,” he wrote. “It is like any other dangerous activity. I believe that proper disclosures should be in place, but we should be free to make our own personal decisions to engage in that activity or not.”
Thomas Torti also argued that any potential investor protection would come at the expense of responsible traders.
“While the intent is admirable, if this is implemented, the result would hurt the consumer,” he wrote. “The problem with most small investors is they lack the knowledge to invest correctly. Most small investors are not willing to do their due diligence and put in the thousands and thousands of hours of work to learn how to invest. The result is they eventually lose their investment no matter what the leverage. A good example of this is the number of people who have lost thousands and thousands of dollars in their 401(k) plans, traditionally one of the so-called safer investments.”
Others suggested the CFTC consider a less drastic leverage reduction (e.g., 50:1), while one Barton Varney advocated an incremental approach.
“If your goal is to reduce risk, why not take a less punitive route?” he asked. “Change your computation ratio: for every 10,000 units of currency, reduce [leverage] by 10 — i.e., 100:1, then 90:1, then 80:1, etc. By the time one reaches 100,000 units, the ratio is 10:1. This way capital is increased proportionally as risk goes up. This gives retail traders a reasonably level playing field with the wealthy.”
The CFTC’s proposed cap would give retail forex traders less leverage than is typically available in the currency futures market (approximately 25:1 to 40:1 depending on the currency). Many forex industry professionals have argued the leverage reduction would put the U.S. industry at a competitive disadvantage to non-U.S. forex brokers offering 100:1 or higher leverage, and that theme was also evident in the responses.
“It seems apparent to me that the motives of this regulation are to disable the off-exchange retail foreign exchange markets, prevent participation by United States citizens, and attempt to move them to exchanges such as the CME,” wrote Mark Matzeldelaflor, who concluded his comments with “I am a United States citizen and I approved this message!”
The comment period closes March 20.
