CFTC Leverage change to 10:1 in the US?...What do you think?

Trading Discussion
41

That’s just CFTC’s excuse for them to protect the wall street “Big Boys” who handed out bonuses to their executives using taxpayer’s money. Those Forex traders who lost money trading not because of the leverage but because of their undisciplined and uneducated sheer stupidity. To be honest, these loser traders would’ve lost money even if there is no leverage.

I hope this regulation backfires on CFTC who’s headed by this Jill Sommers, who obviously has no idea how short-term financial trading works. The Retail Forex Trading business is slowly become an important part of the economy because it’s something that works.

42

I agree with you and im against the proposed rule, but they have good ammo to use to try to pass it by trying to show retail forex account stats and claim that leverage is the cause. fingers crossed!

43

That’s why we need to UNITE and give CFTC a piece of our mind to let them know that this “cap of leverage” crap is not just going to impact us individual traders and the retail forex industries negatively but also the US economy at large. They might not care about us traders but their “arsenal” however powerful is going to backfire and hurt the US economy which is still struggling to get back on its feet and it’s gonna need all the help it can get. This “leverage” proposal, we all know was not put on the table to “protect the individual investors”. We can all “protect” ourselves very well, thank you very much and if some losers who think Retail Trading is a “Get-Rich” scheme, well that’s too bad for them. It’s unfair that a piece of proposal is drafted to protect the losers who choose not to do the homework and put in the hard work like the majority of us especially when this is something that is suggested to them again and again. But then again we all know this piece of proposal is really designed to curtail the Retail Trading business, not just forex but all retail trading. They did the same thing to Stock Daytrading business several years ago and killed it basically.

Send an email to <[email protected]> , with “Regulation of Retail Forex” in the subject line. Also, include “RIN 3038-AC61” in the body of the message with your comments.

You can also send your comments by fax: (202) 418-5521

Or good ol’ snail mail: David Stawick, Secretary, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, DC 20581

Thanks for reading! :slight_smile:

44

The reduced leverage discussion is starting to make its way into Congress. Here’s an article about recent happenings:

"House Lawmakers Concerned On CFTC Retail Forex Leverage Proposal"
http://www.easybourse.com/bourse/act...roposal-805409

Here are some highlights:

Several lawmakers at a House Agriculture farm commodities subcommittee hearing Wednesday grilled CFTC Chairman Gary Gensler about a provision in the commission’s proposal that would restrict retail forex investors to a 10 to 1 leverage ratio, thereby forcing them to post much higher collateral.

“I don’t get what we are trying to accomplish here by lowering this to 10 to 1,” said House Agriculture Chairman Collin Peterson (D., Minn), saying the proposal appears to put investors’ money even more at risk. “Who are you trying to protect here?”

And Congressman Marshall:

“If our leverage rules are 10-to-1 and leverage rules elsewhere are 100-to-1, the business is going to move elsewhere,” Marshall said, adding that investors could be even less protected if business moves to a country with lax regulations.

And again from Chairman Peterson:

“I don’t think it’s well thought out,” he said. “I think they are trying to fix a problem that doesn’t really exist.”

45

It is a great rule and should be put worldwide. Too many people lose because of the high leverage, it is bad for the economy, makes one guy a billionaire and thousands of guys broke.
Don’t look at it from a profit point of view, but rather from an economic point of view.
If a guy has $10k and spends it within his country then that’s economy stimulus, if he loses it in forex then some foreign central bank gets the money.
I have seen lives ruined after people lost all they had in forex.
When people see 100:1 they assume they can make millions too easily short term, if 10:1 goes ahead then people will look at forex as more long term at investment.
There also countless adverts misleading people into thinking that forex is minimum risk and maximum profit.
I hope same rule will one day be applied in Europe.

46

If the intention is REALLY to help traders to trade more prudently, then implementing a “One-Size-Fit-All” capping leverage is NOT the answer. The answer is, as everybody knows, Education. If some traders were so imprudent and reckless enough to the point that he/she can blow all of the money in one shot, then he/she will STILL blow everything even if there is no Margin. Just look at all those people who have their “lives ruined” after they blew all their life-savings even their families’ life-savings in casinos. There is no Margins offered in casinos. And yet we don’t see any regulations or proposals offered to shut down casinos?

The bottom line is people will ALWAYS choose to do whatever they please. Making some rules to make it more discouraging to do one thing is not going to curtail it. In fact, it’s going to make the situation worse. Now the same traders are going to just put in more money up front and blow them off even more quickly. At the same time, it’s penalizing the prudent traders like the majority of us who have chosen to do the homework and the hard work to trade Forex carefully as a serious business. If the proposal passes, we all have to put in more money more than we wanted to if we are to take advantage of profitable trading opportunities. If it’s the misleading advertising is to blame, well those same advertisings are always accompanied by Disclaimers stating the riskiness of Forex investing and the potential danger of investing with high Margings. Why aren’t those traders reading the Disclaimers and stop and ask questions?

Like I said before, if some losers who think Retail Trading is a “Get-Rich-Quick” scheme , well that’s too bad for them. It’s unfair that a piece of proposal is drafted to protect those losers who choose to waste their money at the expense of majority of us who choose to trade more prudently. We all owe it to ourselves to live our lives responsably, whether it’s forex trading or anything. It’s not right to have some government regulators to come up with some proposals to tell us how to trade or live our lives. Especially we all know this piece of proposal is really designed to wipe out the Retail Trading business, not just forex but all retail trading. They did the same thing to Stock Daytrading business several years ago and killed it basically. This time they are going to drag the US Economy down and at the same time, fatten the coffer of some foreign countries where the broker chose to move the business to. Be clear about this: WE are NOT moving our spot forex business to futures forex. CFTC can stop dreaming about that!

47

Good! Hopefully somebody high-up there have some sense and agree with us. :slight_smile:

48

Forexia; I agree from a personal point of view that it is damaging to you, but remember, the losers are 95%, and it is done in the favour of the 95% losers rather than to damage the 5% winners

49

The sad thing is it’s damaging to ALL, even and especially to the so called 95% of the losers. Like I said before, losers will always be losers even with NO Margings. With capped leverage, these losers are just going to put up more collateral up-front and they will still blow off money quickly if they choose to trade irresponsibly while having the rest of us suffer with them.

And in fact, I don’t agree with the low % of so called winners in the short-term retail trading industry. That statistics was compiled with biased method. Retail trading industry, just like the more “conventional” investment industry such as the assisted brokerage or mutual funds investing and etc., is a long-term investing. It’s just the style of investing that is different being that the holding timeframe of any particular investment instruments is short. True, at any GIVEN point in time, if you look at the account status of any retail trading business, you will see high % of “losing”, but this is TRUE in ANY books of ANY Investment firms across North America. At any given specific point in time, if you examine your mutual fund (which is supposedly one of the most conservative investment) companies’ books about the account status of their mutual fund clients, you will see majority of them having lose money in their mutual fund account. Are we going to put in a regulations to clamp down on Mutual Fund Industries as well? No, why? Because we all know that Mutual Fund is for long-term investing even though you might see investors buying and selling their mutual funds on a daily basis. In ther LONG-TERM, we know and hope that our investments will turn around and be profitable for us. And Retail Short-Term Investing, not just Forex is the same thing. People including those CFTC officials do not understand this because they do not bother to put in the time and effort to learn and research about this investment method. Instead, they dismiss it as “gambling” or “russian roulette” or “get-rich-quick” scheme and throw whole bunch of regulations to clamp it down hoping it will go away instead of taking the time and effort to educate and support it.

50

As you might know, the US CFTC (Commodities and Futures Trading Commission) has put out a proposal of introducing the maximal leverage of 1:10 instead of the current 1:100. If this proposal ever goes into effect, it will mean a serious harm to retail Forex overall and any Forex-related business in particular (just imagine what it’s like trading a live account with a 1:10 leverage). The change will concern absolutely all US-regulated brokers, not just the NFA members. Comments on the proposal are currently being accepted from the general public until March 22, 2010 at <[email protected]> with “Regulation of Retail Forex” in the email’s subject line. Retail traders are campaigning massively against the measure, with over 6,000 comments having been submitted to CFTC to date (heck, even a known Forex magnate Michael Greenberg sent one). Below is the message I sent to CFTC on this matter and I urge everyone here to join me in this effort (you may copy the text of my message and put your name in the end if you wish):

Dear Sirs,

I would like to hereby express my deep concern with the intentions of CFTC to limit the maximal leverage for retail Forex brokers from the current 1:100 to 1:10. In my opinion, the following scenario is likely in that event:

  1. The maximal leverage reguirement will be increased for all US-regulated brokers from the current 1:100 to 1:10. This will clearly demonstrate a complete dismissal of a regular Forex trader’s interests if they happen to be conflicting with the interests of the “big wallets” - banks and non-retail futures brokers. We do not wish to be “protected” till we go broke just to make them even richer.

  2. US-based retail Forex brokers will sure be unwilling to lose their business completely. They’ve already got burned with the recent self-imposed regulations of the NFA (which is not even a government agency, although many traders are made to believe it is) and now clearly realize the 1:10 leverage will be the last nail into their coffin. These retail brokers will therefore start moving their businesses to other countries and servicing US customers from there, successful examples of which already exist: Dukascopy in Switzerland (which has recently introduced MT4 in addition to their custom platform), ATCBrokers and FXCM in the UK, FXDD in Malta, FXPro in Cyprus etc.

  3. The US government in response will do everything possible to prevent US traders from enjoying the benefits of being serviced in other countries by making overseas transactions to personal bank accounts even more controlled and restricted.

  4. Those traders who make a living from their trading will then have no other choice but to set up offshore companies for themselves through the Internet (contrary to a popular belief, this doesn’t cost much - one can get an offshore company with an overseas bank account for as low as $1,500).

  5. As all (or most) trading accounts will be on the companies’ names, the US government may heavily lose on the income tax they collect from US Forex traders. Thus, trying to harm the average Joe trader and make the banks and futures brokers richer at his expense, the government is harming themselves in the end.

Since recently, America (which I really love) has been turning from a land of opportunities to a land of restrictions. Very sad to see this, indeed.

Yours sincerely,
…

51

Well said Braves… kudos to you

52

I think if the CFTC wants to do something with respect to protecting consumers, they could focus instead on eliminating the “$50K demo accounts” that retail forex brokers plaster all over the web.

I mean who doesn’t get the impression they’re good at trading with that kind of illusion, and then find out reality later after losing their bankroll which probably sure didn’t start with $50K !

:cool:

54

Well, then it sure is time to take some immediate action to stop this process.

55

Demo accounts don’t involve any real money, so I don’t think there’s a way to regulate this aspect.

56

Then they have to come up with a way ;)…but also I think the forex retailers should be a bit more responsible in this regard and regulate it themselves.

I mean they’ve taken advantage of an unsuspecting vulnerable customer pool the internet has opened up to them…who then cried wolf when they lost their real money… and then everyone wonders why the forex police are trying to do something, of which the cure is worse than the disease.

:cool:

58

I cannot even begin to contemplate how that does anything positive? Why do you think it is a good idea to punish the consumer and make it even harder than it already is to get started? This seems more like desperate fumbling in the dark. Demo accounts are a blessing and allows the inexperienced to get real experience in a realistic environment. When I got into trading I actually had to print day old charts and do it by hand. It took hours! Wasted tons of time! Even here at Baby Pips they preach an invaluable mantra…DEMO TRADE for at least a year! DARN RIGHT! Do you know how the CFTC could do something? They could actually pursue and prosecute for a change. Work with legal parties and get criminals behind bars instead of the paltry small wrist slaps that occur. It would not solve every problem but it would be a step in the right direction instead of punishing the consumer beginner trader.

Respectfully, that is a bit too simplistic. The legit brokers are being responsible. They post warnings, they offer demo accounts to let you practice until you are ready, most provide a lot of free training material, tips, webinars, courses, Excel spreadsheet calculators, indicators, etc.

Criminal ‘bucket shops’ are not and never will be legit or play by the rules. We have to be responsible adults and make an effort to think before we act.

I started trading Futures back in 1995. 3 of us pooled our money together…$35k. There was no such thing as FREEBIE. You either knew or you didn’t. It was a world for adults only. And it was hard! Though it was not as hard as it was before 1995. Now, THANKFULLY, it is easier to get in the door. There are demo accounts, lower cash requirements because of leverage, support personnel that will POLITELY answer your questions and generally help you and treat you like you are wasting their time. You should have been on the phone when I needed help…the rudeness, the abuse, the attitudes! Things are regulated. Sure improvement is needed but what is perfect? The Stock market? HA! Regulation is needed and it is good but lowering the leverage is stupid. It solves nothing and serves only to punish the consumer.

Sure. But I have seen many of these types. They are the same ones who impatiently rushed into it because they wanted to make a fast buck and had to learn the hard way. The Forex Broker’s job is to be ethical, and follow the rules…not babysit.

This rational is why everyone fell for the real estate market. I will repeat myself from an earlier post -
As an agent, I was putting deal after deal together advising clients to get legal counsel and to make sure they understood the terms of the contract and their mortgage. Everyone was willing to bid an extra $30k to get the house but would not spend $200 measly bucks for an attorney. NJ is one of the most regulated states with RE. You cannot imagine how complex it can get with contracts, release forms, disclosures, etc,. etc., etc. I begged many to stop and think! They got insulted and accused me of having ulterior motives, trying to make a bigger commission, trying to get the house for myself, etc. Then, many have the nerve to try to sue everybody once they saw their house had dropped 25-40% in value (Imagine a $1.4 million home now worth 900k!). Every case they have lost and every case I have counter-sued to get my legal costs back and I have won every single time. Why? Because the courts saw everything was ethical and proper and even above and beyond what was minimal requirement, my contracts were perfect, everything was accurate and recorded and signed off on. It all came down to THEIR personal greed and stupidity. Not me, not the ‘system’ and not anything criminal. And isn’t that the 2 typical reasons why so many people fail at trading? Lack of discipline and greed.

You cannot solve every problem and protect everyone. I like the fact that they want to regulate and protect the consumer…but lowering the leverage does nothing but stop those without large sums from trading and sends everyone else overseas to less or even unregulated waters.

59

Hi Brian,
I think you misunderstood me…I was referring to the [B]amount[/B] of the demo account …not demo accounts themselves. Realistically, most new traders don’t start with [B]$50k [/B]in capital, so why start a demo account with that much?..that’s all I meant because it [B]makes it look[/B] easy, and they did’t need much discipline when they played around with it.

Therefore they should offer demo accounts by asking how much they planned to start with instead of defaulting to $50K.

:cool:

60

Yes, you are correct, I did not get that from your post. So that is clear to me now. But I still would repeat what I said once again. Someone is going to dream, even if it is a $1500 demo account. However, that is just focusing on little things that don’t really matter.

Seriously, imagine that scenario and ask yourself…how stupid could someone be to use a 50k demo account and believe it will relate to them and their real $200 or $1700 account? (lol)…and…if they are that stupid…how do you really ever expect to help that ‘type’? And…LOL…if they are that foolish, do you really believe they would have been a successful trader any way? LOL :eek: You get the point. LOL

On top of that, how do you quantify what is realistic and what is not to every single person? I say $5k, you might say $2k and everyone else out there will have a number. And yet…many will still delude themselves and rush to make that fast buck. And even if you did away with a demo account system, that would be all the justification many would need to just say F it and jump right in and blow it all.

This is Catch 22. The end user, the individual trader is the X variable. It is impossible to accommodate everyone perfectly.

There is a BIGGER picture, and so we must pullback and focus on that. Criminal behavior, lack of enforcement, institutional conflicts of interest (such as brokers advising clients to trade one way then trading opposite the client’s interest) and the list could go on. Solve the BIG stuff. Demo accounts and people not fully understanding what they are getting into is their own darn fault if they were properly advised and warned ahead of time. My contract with my broker is around 19 pages long. I read every word of it and had my attorney review it. When they email me about policy changes, I make sure I know exactly was has changed. It is not fun to read that crap but it is important and necessary. Sometimes we have to learn harsh lessons before we mature. Others will just never learn. lol

61

I am one who uses demo accounts with starting sums vastly larger than my real account. I must be missing something here.
Unless a demo account behaves very differently than a live account, I fail to see the problem. I NEVER pay any attention to the amount of money shown (P/L) in a demo account, because it’s meaningless. I track only the % difference, which should relate to the success rate, within reason, I can expect when I go ‘live’…??
I think a monstrously bigger problem is the pending CFTC action regarding leverage. I have not seen the rational those clueless morons are using for this move, but it appears in line with the rest of the administration’s attitude toward personal freedoms. The right to fail etc.
By the way, the Capital Controls clause in the new HIRE law takes care of moving funds out of the country. It doesn’t prohibit it, but it certainly inhibits it, and gets the government’s fingers into capital outflow. This is no surprise, as they are broke and scratching for every penny. Don’t wanna get too political but Grrr…

62

While I don’t particularly care for governmental intervention on my behalf, I feel this is an environment whereby unsuspecting people (consumers) are definitely getting taken to the cleaners.

We are in a very troubling economic period and many people are struggling to make ends meet let alone plan and fund impending retirements. Governments are spending us into oblivion not just here in the US, but around the world.

Then you see the flashy ads for an “easy” solution to all your financial worries plastered everywhere with little concern by our governments on earnings claims being made.

I’ll bet I get 25+ emails a day touting the latest and greatest, infallible, no-loss, forex robot or trading strategy (yes, I even bit on a few robots when they first appeared).

But even a cursory examination will reveal these marketing wizard’s products to be the scams they are.

Too many of these $97 wonders are based on false logic about indicators and are demonstrated ad nauseaum with trade examples drawn in the middle of the chart. Anybody found the broker yet willing to let them trade from the middle or left edge of the chart?

To add insult to injury on the unsuspecting newbie or hopeful trader, they provide trade examples that couldn’t possibly be taken based on their own stated rules (like hypothetical triggers that can’t be confirmed until the bar closes which is often many pips from the so called entry point).

My point is that we are witnessing another internet “gold rush”, this time fueled by the allure of quick riches in the forex markets. It seems once again the majority of those getting rich are the ones hawking products and services to unsuspecting “miners”.

Perhaps the CFTC and government agencies should turn their protective gaze in this direction and leave us traders alone.

The market will certainly weed out the greedy and insolvent regardless of the leverage offered or accepted.

Unfortunately, the government’s position once again has little to do with public interests but rather, it’s driven by the interests of big banks and other heavily capitalized corporate machines.

Small traders are slicing ever increasing portions out of the forex pie and that has the fat cats concerned.

So as a “little” trader, I’ll have to be content with playing the best I can regardless of how the rules may change during the game.

Dave