I joined babypips today looking for information on the proposal by FINRA (Financial Industry Regulatory Authority) to limit the leverage their member brokers can offer retail traders to 1.5 to 1, down from the industry “standard” of 100 to 1. Forex Savior, in a previous post, states that this will apply to FINRA member firms, and not NFA member firms. However, the proposal by FINRA is to be submitted to the SEC after the comment period closes on February 20th. I also noticed in the latest issue of Futures Magazine that Mary Schapiro, the current CEO of FINRA, has been nominated for chairman of the SEC.
If the SEC adopts this rule change is it safe to say that it will apply to all US based forex retail brokers? If so, foreign brokers should be getting a lot of inquiries. Here is the link to the FINRA article: (click View Full Notice)
FINRA - Regulatory Notice 09-06
first off welcome to babypips!!!
It is my opinion that forex is an unregulated market and will remain that way at least for the near term. I think the forex brokers would realize how much money it would cost them in business if they had to limit there leverage. U.S. consumers can simply sign up with a swiss broker or some other international broker.
this is just my best guess 
So … hypothetically, if this goes into effect someday, what would it mean to retail traders?
Would it eliminate micro & mini accounts? Would it affect the amount of startup deposit required, thus putting it out of reach for many average folks to have access to trading forex?
What I took from the PDF is that it meant that if you wanted to trade a full lot, say $100,000 to make it round, you must put up 50,000-66,000 of your own money like you have to do in the standard commodities market.
Well, it would at least be beneficial to the 95% that blow their wads trying to make it in Forex. However, the 5% that do end up getting it would be screwed.
That’s along the lines of what I was thinking too, except I think it’s more like $66K - 100K deposit.
In babypips schools, it says:
“[I][B]Let�s say the $100,000 investment rises in value to $101,000 or $1,000. If you had to come up with the entire $100,000 capital yourself, your return would be a puny 1% ($1,000 gain / $100,000 initial investment). This is also called 1:1 leverage[/B][/I]”
So you’d need $10k for a mini if @ 1:1 or $6K @ 1.5:1… and $600-$1K for a micro…would that be correct…
Then you’d only be able to have one trade at a time open to start because your whole deposit would be tied up.
Not sure if this is good or bad thing yet…
2009.02.05 BIG BROTHER WANTS TO REDUCE FOREX LEVERAGE
Retail Forex
FINRA Requests Comment on Proposed Rule to
Establish a Leverage Limitation for Retail Forex
Comment Period Expires: February 20, 2009
Executive Summary
FINRA is requesting comment on a proposed rule prohibiting any member firm from permitting a customer to: (1) initiate any forex position with a leverage ratio of greater than 1.5 to 1; and (2) withdraw money from an open forex position that would cause the leverage ratio for such position to be greater than 1.5 to 1.
The text of proposed FINRA Rule 2380 (Leverage Limitation for Retail Forex) is set forth in Attachment A.
Questions concerning this Notice should be directed to:
Gary Goldsholle, Vice President and Associate General Counsel,
Office of General Counsel (OGC), at (202) 728-8104; or
Matthew E. Vitek, Counsel, OGC, at (202) 728-8156.
Action Requested
FINRA encourages all interested parties to comment on the proposal.
Commentsmust be received by February 20, 2009.
Emailing comments to <[email protected]>
========================================
Full text attached.
EVERYONE MUST SEND AN EMAIL AND TELL BIG BROTHER TO BUTT OUT!!
PDFCB.pdf (75.9 KB)
sweetpip it says “member firm” Does that mean this leverage rule they are trying to implement is limited to broklers who deal in other things that are regulated by the sec?
Yesterday I blew this whole idea off but I was researching what I could find and im concerned. with the new administration anything is possible.
You are in Canada right? Maybe this won’t affect you. Forex is international there is plenty of overseas brokers like ACM. How could FINRA regulate them?? There affiliation is to the NYSE and darn i forget the other but what I read was there was a recent merger of these governing bodies and now they want to control forex.
If we wanted regulation we would trade futures!!!
BTW Ill be contacting IBFX and asking if they are a “member firm” and if this will affect them. I suggest others do the same so we can get to the bottom of this.
ok sweetpip I got my email out to them heres a copy.
Anybody feel free to copy and paste what I have written if you want to.
there email address is; <[email protected]>
To Whom it May Concern,
In regards to your proposed rule to limit leverage for retail forex; I believe this is a disastrous policy. For one it is our free will how we will invest our money and or speculate with it. It is the responsibility of individual to manage risk not the government. In the retail forex world there is a common teaching that you should never risk more than 2% of your account balance at any one time and no more than 1% total per trade. This is responsible yes but should not be mandated. While you are at it why not tell us we can't long eur/usd because the value is going to drop. or prevent people from selling there house because this year the value would be down.
The spirit of what you are doing is fine but this is a slippery slope and I'm afraid where it will lead. Most retail traders don't mind trading in an unregulated market and we are made aware of the risks;
[B]U.S. Government Required Disclaimer - Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with money you can’t afford to lose…
Risk Disclosure: Trading foreign exchange on margin carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you. As with all investments, you should not invest money that you cannot afford to lose. Before deciding to invest in foreign exchange, you must carefully consider your investment objectives, level of experience, and risk appetite. Additionally, you must be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor. Past results are not necessarily indicative of future success[/B]
These types of warnings are already required and are sufficient. There is never an instance in retail forex whereby the person involving themselves with a retail broker is not made fully aware of the risk involved.
In closing I would like to say that I feel it is unconstitutional to make such regulations and it stands in the way of a capitalism and the whole concept of a free market. I feel your efforts would be better spent addressing some real issues and protecting investors from such things as ponzi scams and that type of deceatfull practice. Policys like this can only cause americans to invest globally instead of domestically.
Thank You for your time and considration,
John
well guys i emailed my broker ibfx and heres what they said
From: Interbank FX
Dear John,Thank you for your recent message. We are not a member of FINRA. They mostly regulate the equities market. So, they don’t have any ability to regulate IBFX. If you have any further questions feel free to contact us at any time.Best Regards,John SellClient Services
DEEP down inside I knew this had to happen, simply because it happened back in the 90’s when the SEC decided to “outlaw” the SOES Bandits and what was then true scalping. They opened everything to the public and simply went along with what they had originally proposed, which was to go over to the decimal system (that tightened the spreads making “scalping” impossible) and then they raised the equity limit in an account to $25,000 from practically nothing, eliminating the ability for the small retail trader to SHORT a stock.
these numbers dont seem much today, but back then it struck the death knell for retail scalping, and it appears that they wish to do this with forex now.
Once these things are set in motion, its usually something that happens, and while misguided, its believed that it will control any “runs” as we have seen with commodities due to decreasing leverage —
hope im wrong !
mp
I want to thank everyone for their replies to my inquiry. I will be sending FINRA my thoughts on their draconian proposal. In their attempt to “protect” lousy traders from themselves, are they unable to see this would destroy the retail market for everyone? Just banning firms that trade against their customer’s accounts would go a long way to clearing up the problem, but I doubt they have thought about that.
I think it’s crutial that we all send our replys. And maybe tell as many people as you know to do the same, even if they don’t trade forex.
guys I want to reiterate that the proposla by finra says member firms. I emailed IBFX and they told me they don’t belong to Finra and that finra has no authority over them. ’
However I would say it is definatly a good idea to email them in fact I did but I will email again with my other accounts. Also fyi the deadline for comments is Feb 20 so don’t wait if you want to email now is the time!!!
If something like this actually happens, it would be the first move in a long “domino affect”, in my opinion. For traders who have actually begun to succeed in Forex, and those already successful, this spells trouble down the road. Power corrupts, and this would be a direction for those of power to follow on, which more than concerns me.
I get that it would only affect “members” of this governing body, but why would a brokerage wish to be a member of such a body if said body is limiting their potential for growth. Or, is this a move that may force brokerages to become members of said governing body, thereby sticking their noses in everyone’s business. Not only is this wrong for the retail trader, it is the first link in a chain that would further bind the general public and keep them as sheep and slaves.
I believe this to be anti-American, as it would deny civil liberties such as freedom of “Life, Liberty, and the PURSUIT OF HAPPINESS”, as stated in our own Declaration of Independence. As an American, I am disgusted that such things can even occur in this country seemingly run by sideways lawyers and corrupt politics.
I will be more than happy to take up the cause against this from happening and will openly speak against it from my soapbox as often as weather, health, and finance will allow.
Good Pippin,
Chubs
That’s my long range concern with this proposal too :mad:
well, guess you said it all with “sideways lawyers” and “corrupt politics”, which is a funny oxymoron in and of itself !
The good side is it would indeed ruin a lot of brokers in the USA, and that is a strong arguement against it happening, but when “they” decide they want to “protect” something, they usually just go forward with it ---- dont like the idea at all, of course, as margin is the life blood of forex for the small retail broker although a bit less important for the larger.
It WOULD cut down the wild swings, by simply eliminating the large margin stakes that are being used to “move” markets but what we must really fear is this spreading (because of the current market hysteria) throughout other countries, forcing all of us to trade out of Cuba or Mesepotamia !
enjoy
mp
That is the government’s M. O. for sure, protect the stupid from themselves and punish the intelligent. The good news is there will still be IBs for foreign firms like me out there willing to accept your business.
Open discussion happening now in babypips chat room. all are welcome.
I emailed my comments to Finra - opposing this action. I closed by saying that they would potentially cause a lot of capital to leave the U.S. Not very smart.