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

Trading Discussion
63

I’m going to post my quick penny on this topic as it came to me as I read the thread.

If the government is trying to regulate these sort of things, their going about it the wrong way. Brokers are not FORCING or IMPOSING the use of 100:1 leverage, 80:1 leverage… etc etc. There is no arm-twisting; it is solely the trader’s perrogative to CHOOSE whether to be highly leveraged or not. Disclaimers on EVERY broker’s website and videos state that trading leveraged is HIGHLY dangerous and should be taking into consideration when beginning.

The government is going about this the wrong way. Instead of forcing 10:1 leverage, more money should be put into educating new traders of WHY IT IS BAD or DANGEROUS to trade highly leveraged. Do government’s intervene casinos and limit people to being in only 1000 bucks a go? Nope.

I understand that casino point is a bit off base, I’m not relating the two by any means.

By forcing the regulation of 10:1 leverage, it only makes it harder for the novice intermediate trader with lower bankrolls to survive/prosper. It keeps new traders out as they need more margin to cover even one trade! In my opinion, that is just hampering the amount of trading that goes on.

Traders will lose money, even the most seasoned trader do. Educating the novice is a better way of ‘protecting’ them, rather than tightening the noose on every other trader in the market.

64

I quite agree with all that. But even tho the brokers display the “Disclaimers”, they only do so because they have to not necessarily because they want to. Why is it that it’s pretty much always in such in such “fine” print vs the fancy sales pitch in big fonts & colors to allure you in in the first place…lol. It’s a psychological tactic that they hope new traders will gloss over, and for the most part, works because new traders see it everywhere it no longer has any real meaning, and surely the “system” being promoted will reduce such risk wouldn’t it? :rolleyes:

Yes, the government should focus on and encourage education, and… maybe this is going a little too far… come up with some sort of minimal qualifications that traders must provide brokers before brokers can accept them :eek::smiley:

65

Agreed. But see that’s what I mean by educating the new traders coming into the markets. Instead of imposing leverage rules, why not regulate or standardize a broker-wide protocol for teaching a new trader the inherent downsides to trading forex? Not to scare them away but at least weed out the ones who aren’t psychologically ready. I mean, if they feel queasy about seeing how they could lose their money in a day, they shouldn’t be trading live in the first place right?

There are other solutions, I just feel the whole leverage change is a completely wrong approach. When is a decision to be made by the CFTC?

66

Like Globalem commented, maybe they (the Gov’t influenced by big money) doesn’t want that…maybe they want to keep us oppressed cause if the herd suddently got smarter and figured out how it actually worked, they might suddenly have to start profit sharing…:smiley:

67

My take on this:

people wanna defend people who cant trade. they say why should a trader have that much leverage if they don’t need it. that’s why scams are all over the place, enticing new traders. when was it my duty to give a crap about people who don’t want to educate themselves and learn from their mistakes? I did just fine learning my lessons and think it’s ridiculous to limit leverage like that. as far as I’m concerned, it’s everybody for themselves. they don’t like that, they can go find another business to start or stay at their day job. I just don’t get why people care so much about someone they never met or will trade with or teach how to trade. So we cant blame it on the lazy people who get suckered in and don’t know how to think critically about things because they saw a flashy ad. And for the record, leverage isn’t gonna stop a scam or people from loosing money if that’s what they’re trying to accomplish. and to add to that, there are guys beating the big dogs at their own game and the big dogs don’t like getting whooped at their own game, so they change the rules so they don’t get whooped.

they shouldn’t take a freedom of choice away because hey think they’ll save people whom they cant save. And thats people who are not cut out to trade forex.

68

Make no mistake… The motivation to limit trading leverage has no more to do with helping people than Obamacare has to do with managing your health.

Both are being driven by larger forces the average person will never know, and the public’s welfare has absolutely no part in it!

69

ok…this is such classic example of an oxymoron regarding “trading is easy” (big print), but carries “significant risk” (in small print)…well which is it??? Plus there’s a $50k demo account advertisment, on the same page, of a website dedicated to educating new traders…do you see the absurdity of it!!! :eek:

oxymoronhype.jpg700×220 33.1 KB

(Sorry BP, it’s not your fault…it’s your advertisers, and they are the same all over the web :frowning: )

70

this is a classic example of don’t believe everything you read. it is absurd for me to believe all of that at first. And i didn’t. I had to learn this stuff. but then again, people who think it is easy forget that theres work involved and yes that’s very funny to me as to why there are ads like that here or anywhere but there they are, for people who do not think critically. if it were easy, a ton more people would be trading. that me using logic.

71

The Euro is a piece of cake to trade, such a cinch. Oh wait, you mean its easy to trade it PROFITABLY??? :wink:

72

can you please explain with details

73

Yeah, that is the oddball irony of it all!

But believe me…when I started trading futures and indices back in 1998, it was the same…only it was Scottrade and similar doing it and they still do it and these guys have leverage of 10:1! lol
Sure seems like that worked out just fine and dandy! :rolleyes: People back then got suckered by easy money and greed and they will ALWAYS get suckered by that.

Ever wonder why there are so many infomercials on late at night selling pipe dreams to the poor and unemployed or the lazy types that just want fast, easy money? Because it works. Regulated, unregulated…a new scammer is always around the corner waiting for you in any market, product field at any time.

Look at Kevin Trudeau! That guy is a CONVICTED criminal! Felonies…not misdemeanors. Illegal car scams involving used cars, fraud, posing as a doctor, intrastate fraud, some money laundering thrown in…all that BEFORE he was on TV selling his “NATURAL CURES” load of bunk which claims cures for cancer, MS and Diabetes. In fact, the methods described within, if followed by those sufferers, could in many cases, cause death! A conclusion reached by leading medical institutes! Yet, people still think he is legit and buy his crap. He has new products all the time…debt cures, natural cures, and he has about 5 new scams coming out by the summer.

As of Feb 2010, he has to pay a $35 million damages settlement and on Feb. 17th was ordered to go to jail for 30 days. He literally is in court all the time now…yet he continues infomercials, making new products, etc. His reputation is crap but still people buy his stuff. They are desperate and don’t are to find out the truth or reality.

There are people that believe Forex is EASY just because the commercial said so. No one will ever be able to help those types. Then there are people that used their heads, rolled up their sleeves…used Google…found their way here…read books…primed and educated themselves. They are the types that likely will do just fine with or without CFTC assistance. :slight_smile:

Changing that leverage won’t do squat. Action and prosecution of thieves and criminals is what is needed. Without that, we have nothing.

I have already moved one of my larger trading accounts overseas to a regulated foreign broker and I have 200:1 leverage now. If the leverage rules are not changed, I will transfer my money back to the U.S.

74

Posting to this forum is most likely preaching to the choir but…

There’s no doubt reducing leverage to 10:1 will all but guarantee the little trader (read small account) has no chance of a future in Forex trading.

Forex is the domain of big, smart money and they want to keep it that way.

Leverage is the tool of the wealthy in just about every financial arena from creating and building a business, buying real estate, and yes investing in paper assets.

Properly used, leverage is what make a good investment great. However, it can never make a bad investment good.

I can easily put up a larger account balance and continue trading with the larger leverage, that’s not the point though.

The point is the wealthy and privileged have always wanted to keep certain high return, low risk investments to themselves.

In the futures markets, including indexes, the rules have always favored the big accounts both in leverage, commissions, and trade execution.

In the most lucrative investment areas, most you’ve probably never even heard of, it requires a liquid net worth in excess of $1,000,000 and most of these investments are nearly zero risk, high return, and tax free. Mutual funds and pension plans can’t even get into some of the best of these.

It’s NOT to protect the public that these rules are created and applied; it is to protect the wealthy and their way of life that the small investor is portrayed as incompetent and not educated enough to venture into these “sophisticated” markets without the protection of governmental oversight.

Unfortunately, the general public will always be swindled by someone, and the biggest swindler today, far bigger than Bernie Madoff, is the U.S. Government. A pyramid is a pyramid whether you call it a ponzi scheme or social security.

So, quit whining about the proposed rule, it’s going to happen or not regardless of our opinions.

Take advantage of whatever time remaining, build a sizable account, and continue to play with the big boys, or not.

Just don’t be deluded into thinking this is some plan for Big Brother to look after the little guy.

75

There will be way too much clamor from both brokers and traders against it

77

forgive me for stealing this thread by I am a newbie and i just wanted to ask you guys if there’s a training program for forex:confused:

78

Green tab labeled “School” at the top of this page.

79

Forgiven but the I AM A NOOB excuse does not fly. You might be a NOOB here but in general…jacking a thread is wrong all over the net. You must have known it was wrong because you apologized for “stealing this thread”. Next time just make the simple effort of posting your own question in the forum. That is exactly what forums are for right? :slight_smile: And everyone generally at any forum is always willing to help anyone…noob or otherwise. :wink:

80

I’m pretty much a noob trader. But there has been a lot of preying on the new/uneducated trader. Still i think regulation is bad. I want to have the freedom of being able to use as much leverage as i want.
Very Interesting Point @globalem,BrianSNJ

Link I thought was interesting

Foreign exchange fraud - Wikipedia

81

I went and read some of that link you put up. In one section it reads…

“Retail traders are - almost by definition - undercapitalized. Thus they are subject to the problem of gambler’s ruin. In a fair game (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole - which has nearly infinite capital - he will almost certainly go bankrupt.”

Later down the page…

“By offering high leverage, the market maker encourages traders to trade extremely large positions. This increases the trading volume cleared by the market maker and increases his profits, but increases the risk that the trader will receive a margin call. While professional currency dealers (banks, hedge funds) seldom use more than 10:1 leverage, retail clients are generally offered leverage between 50:1 and 200:1[2].”

Sooooo lets give us less money to compete with the market? I’m not following. And high leverage does not encourage “extremely large positions”, greed does.

Do they not understand that margin calls are the result of VERY little money management? The majority of seasoned traders say that this is the most important aspect to learn as a new trader. I would expect the same failure rate in other endeavors if you didn’t know the most important aspect in that area (a mechanic who didn’t know how an engine works, a poker player who didn’t know the rules of the game). I bet that if the number of retail traders stays the same, margin calls will actually go up. They would HAVE to risk more to be able to come out with a decent payoff. Those who risk too much will STILL risk too much. If you want to be profitable, you need money management. Failure to learn that will undoubtedly lead to a blown account.

I think that the CFTC needs to realize a few things.

  1. You can’t fix stupid.
  2. Catering to the weak will breed more weakness.
  3. All of the information to become a profitable trader is available for those who seek it.
  4. If this passes, it will only shift those who still trade to other countries who have a free market.

It surprises me that the govt still has no idea why America is losing ground in the economic race.

“They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.” - Benjamin Franklin

82

You dont know WTF you are talking about. Leverage does not cause more risk. A trader who knows what he is doing can risk only 1% of his account even if he has 1:1000 leverage available on his account.

It’s the leverage you choose to use and your moneymanagment that determines risk.

You really should know wtf you are talking about before you open your pie hole.

83

Completely agree with ThePhoenix. If you blow your account because you can’t use proper money management, whoever netted your account deserves to spend your money since you haven’t invested the time or effort to figure out how to do that yourself. The only thing I would change is that a trader who doesn’t know what he’s doing can still risk only 1%, otherwise you’re just a gambler.