As many of you know on October 18th, American Brokers will limit their leverage to 50:1 instead of 100:1 leverage.
Also in Japan, the limit is 50:1, and will be reduced to 25:1 next year. This is less than the classic 100:1 leverage that is common to forex trading, and less than the NFA limit of 100:1.
For exotics, you will be limited to 20:1
How do you guys feel about this? Yay or Nay?
Have you done any reading here on the Babypips Forum?
The coming change in leverage has been discussed on various threads here [B]since last January[/B].
Over the past 9 months, we all have made our feelings pretty clear on this topic.
I dont believe anyone answered this question in the other thread, why does it really matter when surely all the trader needs to do to counter the leverage reduction is trade 2 lots instead of one ?
I’m against it, but only in principle. I don’t hold positions that go over 50:1.
well if you dont have the equity then it isn’t as simple as that.
$100000 =$1000 to open at 100:1
$100000 =$2000 to open at 50:1
so how can you open the same position now by opening 2 lots, you will be required to use twice as much equity to do so.
Perhaps it is true if you were talking about true leverage, but this new regulation is on broker leverage (ie. deposit to open the position)
personally i am not affected by it, firstly cause i am in australia, and secondly if your leveraging out your account at more than 20:1 at any one time then your not going to last very long, your account leverage should be closer to 2:1 or 4:1 and you can easily do that with 50:1 broker leverage - which is still alot of leverage
Laissez Faire
Does anyone actually know what the rule is?
Is it 50:1 or 25:1?
Some brokers believe the maintenance margin on open positions will also be regulated at 2% (50:1) instead of 1% as it has been with most 50:1 brokers until now. If this is the case and you open a position with 2% margin, you will be in danger of getting margined out instantly if the price goes against you by a single pip!
To have the same drawdown tolerance (50% loss) you will need to use 4% margin. That means the new de facto rule is: ***** 25:1 *****
This question has gone unasked and unanswered for a while now.
Oh, and for those of you who are so quick to proclaim that you don’t use high margin: we know it’s really all about short term trading.
I know most of you write this kind of crap are paid hacks for large banks, brokers and SWF’s. Or, for the CFTC. I know they hate short term traders. Short term traders have got them pulling their hair out!
Poor babies…
Suppose you had enough capital to move the market around, and could read the order books of large brokers (you probably would BE one) giving you the ability to move into huge positions with assurance you could OFFSET them at the KNOWN location of a properly sized stop pool. Suppose you raked in 10’s of millions of retail trade dollars every day. Year after year.
Then, suppose that over time these order books became less reliable. Suppose a bunch of short term traders came along and started using stops so small that no useful offset pools developed. Suppose these #@%^! short term traders didn’t even bother to put their stops on the brokers’ servers! Suppose they opened with market orders instead of limit orders leaving nothing in an increasingly unreliable order book for the big dawgs! Mmmm, scary!
How would that make you feel?
That would be awful. And, like Goldman, they’re probably just doing the Lord’s work.
The answer to their problem: higher margin ==> smaller positions ==> longer term trades to make the same money ==> more stable and reliable order books for large players in the business of stop harvesting.
Damn I thought I understood all this.
OK so let me ask you a question, secenario:
Trader opens account with deposit of $2000
Trader wants to trade at $1 per pip so he trades 0.1 lots
This means margin call is at -1000 pips (50% of intial deposit)
is that correct ?
So under the new regulations, would that trader now have to trade 0.2 lots to get his $1 per pip trades, and his margin call would now be at -500 pips ?
a 0.1 standard lot ($10000), the pip value will always be $1/pip, that has nothing to do with leverage…all the leverage is, is how much you leave with the broker while you have that position open and is returned to you once that position is closed.
[B]50:1 leverage[/B]
10000($1pip)/[B]50[/B]=$200
100000($10pip)/[B]50[/B]=$2000
etc
etc
[B]100:1leverage[/B]
10000($1pip)/[B]100[/B]=$100
100000($10pip)/[B]100[/B]=$1000
etc
etc
for eg. $10000 position (ie. 0.1lot, 1$pip) is open with 50:1 leverage will cost (10000/[B]50[/B]) = $200 deposit (thats 50:1 leverage), now his available equity is ($2000-$200)=$1800, therfore -1800pips brings on margin call, afterwhich his deposit, at 50:1 leverage, is returned to his account so now his balance is $200.
at 100:1 the deposit for ($10000,0.1lot,1$/pip) costs (10000/[B]100[/B])=$100, therefore -1900pips ($2000balance-$100deposit) brings on the margin call
Governments are too powerful these days. What the heck has the government to do with my investments? Isn’t that already sick enough that they put their hands in my pockets - now they want to decide what I have to do with my left money?
The US government is stupid we have 10% unemployment, the no hedging rules and first in first out must have already lost our forex brokers business to foreign brokers, this leverage rule will probably be the nail in the coffin that effectively gives that away to foreign brokers who I’m sure will be happy to continue giving US customers 100:1 leverage, hedging and any in any out if that is what they require.