As you all know, one of the best attraction of foreign currency trading is high leverage. “Since the Dood-Frank Act took effect in October, 2010, a raging discussion ensued about its benefits and disadvantages to the retail forex industry in the U.S. which up to this time has divided the sentiments of individual forex investors. In the light of the said regulatory measures, even the best forex brokers operating on U.S. soil (and online) must be registered with the Commodity Futures Trading Commission and must comply with certain capital and reporting requirements.” Naturally retail forex traders won’t be happy with cutting Leverage down or limiting it.
So far, the CFTC has promised fund safety and preventive measure to stop traders from losing their hard earned cash. This promised has however, proved to be an empty one. Brokers who are registered under this body cannot offer high leverage than 1:50, and yet clients are complaining of missing funds every now and then. If traders’ money are not completely safe anymore under these brokers, then what is the need to suffer this leverage limit.
Now the question is this: Which is better, Higher Leverage or Limited Leverage by the Dood-Frank (All in the name of protection which is not being given anymore)? So, guys, if you want to trade with higher leverage, do no be afraid to register with a broker that provides. As long as the broker has a clean track record, I’ll say GO AHEAD!
What idiots like Dodd and Frank do not comprehend is that leverage was never the problem; the absence of risk management was. No matter how big the leverage is, if you stick to your risk management (3% for example) you will always limit your losses to 3% regardless of leverage.
I agree with you 100%. It always makes me laugh when people think that high leverage caused the issues of the financial crisis as it illustrates their lack of understanding while they are given a position where they are allowed to make changes in a sector they do not comprehend.
I have always said this and finally someone know it as well. I was really wondering, how come many traders feel that leverage is dangerous. In fact, leverage is a very good thing for this business and the so called dodd/frank made things worse.
I’d maintain a high level of scrutiny over the stories of peoples’ funds going missing. If that hasn’t been verified, don’t believe it.
The incentive for a broker to do that is not worth the risk. It’s ridiculously easy to document and report; business licenses would be revoked; fraud charges would incur; **** would, as they say, hit the fan.
As a tangential topic, I understand that targeting leverage as the bad guy is definitely an incomplete picture. Using it intelligently can provide better returns for those who are skilled enough to take them. Having higher leverage available while still using small position sizes allows for less margin to be taken up, which is generally a good thing. There are great benefits to leverage.
At the same time, I’ve seen leverage become the bane of most traders’ accounts. It’d be much harder to blow out an entire account with 1:1-1:2 leverage on assets that fluctuate 1-2% on an active day.
It’s cute to say “Hey man, just don’t use it!” but interestingly, many of those same people spouting that message are the ones who will be quick to tell you that trading is all about discipline and emotional control (which it most definitely is). It’s like talking to somebody who’s been addicted to smoking and is now actively trying to quit. You drill the message of it being completely about self control, but then also open up a crisp new pack of cigarettes right in front of them. You pull out that initial piece of tin foil and let the air waft of that sweet, sweet nicotine they crave. You light up, inhale with satisfaction, slowly let that smoke sail out of your mouth then say, “Just gotta have control man.”
Anyway, point being: Put those pieces together and it’s a setup for disaster
Long-term success in trading comes primarily through emotional control and discipline
As such, those who are unsuccessful likely are lacking in their development of that control
It’s those moments where control is lost that having high leverage available is self-sabotaging
So, leverage is a good thing. A trader must learn to take advantage of it. However, only offshore brokers at the moment gives satisfactory leverages presently.