Questions about leverage/margin trading past and future

For USA, the changed margin/leverage to 50:1 that was 7 years ago right? When was the last time it changed before then?
I’m curious because I’m trying to see how likely it is that they will eventually lower margin to 20:1 or 10:1 ?
I trade stocks, my formula works on forex, but I just wanna make sure it is going to be around forever like stocks before I make any major moves. Given if you have a decent capital you can trade 10:1 leverage, but would that ever get lowered to like 5:1?
Stocks for example is simple 2:1 that likely will never change and even if did wouldn’t be the end.

Thanks for the answers!

Maximum allowable leverage has been restricted only once – in 2010 – roughly 2 years after the CFTC gained regulatory control of the spot forex market.

The retail spot forex market in the U.S. was unregulated prior to 2008. Maximum allowable leverage was determined by individual brokers, and was typically 100:1, or higher (in some cases, much higher).

When the CFTC gained the legal authority to regulate spot forex, they instituted a series of severe requirements and restrictions on what forex brokers were required to do, and what they were prohibited from doing, culminating in their proposal (in January 2010) to restrict maximum allowable leverage to 10:1.

After a months-long public review period, during which that proposal was hotly debated, the CFTC issued the final 50:1 leverage limit on major currency pairs, and the 20:1 leverage limit on so-called exotic pairs, and these are the CFTC limits we still live with today.

However, brokers are increasingly imposing even lower limits (below the maximum levels dictated by the CFTC) on some pairs, and during certain market conditions.

Assuming the off-exchange (OTC) spot forex market continues to exist in the future – and that’s a big assumption – it’s not possible to extrapolate the CFTC’s past leverage regulation into the future, and predict (or even guess) whether or when a further leverage restriction might occur.

However, we do know that the CFTC hates the off-exchange retail spot forex market. It’s not only the “off-exchange” aspect that they hate, but the “retail” aspect, as well.

They are intent on forcing our market onto a futures-style exchange, and we can guess from their agenda where maximum leverage might be pegged, if they are successful.

My guess is that, if the CFTC succeeds in forcing spot forex trading onto a futures-style exchange, maximum allowable leverage will be reduced to 20:1 across the board, and might even be limited to less than that on certain pairs.

Furthermore, I’m guessing that account-funding requirements and net-worth requirements for market participants (traders) will be set so high that ordinary retail traders will be priced out of the market. If that happens, exchange-traded forex contracts will be available only to institutional traders, and “qualified individuals” who are able to demonstrate significant net-worth and are able to fund large accounts.

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Clint, I know you hate the CFTC/NFA for legit reasons in some areas, but you seem to have wandered away from reality a bit here. The CFTC allowed the futures exchanges to first create e-mini forex contracts and then micro contracts and did not impose limits on who could trade them (assuming you have the available margin). Why would they suddenly change that - especially if their motivation is, as you say, to kill the off-exchange retail forex market? (They can’t do anything about the inter-bank market)

Wait so forex is likely to stay open to us retail traders?

In one fashion or another, yes. If retail forex fades away, there’s futures. There’s also the ETF option since you already are familiar with the equity markets.

Fair enough, I’m curious, does futures trade similar to stocks/forex? I have not tampered with them really at all.

Thanks!

Structurally, futures trading is very similar to retail forex. It’s a contract based market with essentially the same type of margin mechanism and marked-to-market accounting. The difference is it’s exchange-based. Also, contract sizes skew a little larger than the standard ones in retail forex.

Interesting I’m downloading a demo account for it now to see how it works, Is futures something more likely to stick around than forex I take it? As far as forex falling off for retail traders goes.

Thanks!

Be sure to thoroughly understand the futures contracts you trade - especially where delivery is concerned.

Futures have been around for a long, long time. Mainly, it was commodities. Financial futures trading took off in the late 70s or early 80s, so it’s already been around more than twice as long as retail forex. It is highly regulated and structured through the exchange system. Retail forex might end up going in that direction (it sort of already has with the shift toward ECNs) or simply get absorbed into the futures market structure.

Got ya, ya it seems like futures and stocks are the way to go, Stocks obviously will never leave us as far as retail goes, but futures sounds like a good secondary market to invest in. Now I did some research, why do you emphasise on delivery and understanding the contracts, aren’t they kinda like stocks, you invest and depending on your position and price it generates profit or loss, are some like harder than others?

Thanks!

Yes, to the last part in general terms, but futures contracts have fixed terms. Delivery is what happens when those terms expire. Some contracts are cash settled. Others require an actual exchange of something. Make sure you understand the contract terms of whatever you trade. If you want to take long-term positions as you might in stocks, you will probably need to switch contracts along the way.

Got ya i got some research to do, sounds like I could end up owing someone wheat instead of cash if done incorrectly!