Proposed CFTC Leverage Change to 10-1 for all US Brokers

Beginner Questions
1

Just received this e-mail from GFT, let your opinion be heard and stop this new rule change from happening. Even if it does not affect you, they soon may enact a policy that will. SPEAK OUT now!

Dear Valued Trader,

The U.S. Commodity Futures Trading Commission (CFTC) announced on January 13, 2010 that it is seeking public comment on proposed regulations concerning retail forex trading.

As part of the proposed regulations, “leverage in retail forex customer accounts would be subject to a 10-to-1 limitation,” which means 10:1 leverage would be the maximum amount allowed for forex traders in the U.S.

An example of how the proposed regulatory restrictions would affect a major currency pair appears below:

Maximum Leverage under

Current Regulations Maximum Leverage under Proposed Changes
USD/JPY USD/JPY
100:1 leverage (one percent) 10:1 leverage (10 percent)
1 lot (100,000) 1 lot (100,000)
Margin requirement: $1,000 Margin requirement: $10,000

We believe that all traders should have the right to choose the amount of leverage that is appropriate for his/her risk appetite, and that this basic principle of ‘choice’ is being threatened by the proposed CFTC regulations.

Should you feel strongly about the proposal, there is still time for you to help determine the outcome of these proposed regulations. You can make an impact by sending comments directly to the CFTC at: <[email protected]>.

Please include ‘Regulation of Retail Forex’ in the subject line of your message and the identification number
****** in the body of the message.

You can also submit your comments by any of the following methods (include above ID number):

* Fax: (202) 418-5521
* Mail: David Stawick, Secretary
  Commodity Futures Trading Commission
  1155 21st Street, N.W.,
  Washington, DC 20581
* Courier: Use the same as mail above.

In the next few days, GFT and the rest of the U.S. forex industry will be releasing a more formal opinion about the proposed changes. If you wish, you can read further details about the regulation on the CFTC website by clicking here.

In the meantime, we encourage you to voice your opinions to the CFTC and your local U.S. representative.

As always, we thank you for your business.

Best Regards,

GFT

2

First they came for the communists, and I did not speak out—because I was not a communist;

Then they came for the trade unionists, and I did not speak out—because I was not a trade unionist;

Then they came for the Jews, and I did not speak out—because I was not a Jew;

Then they came for me—and there was no one left to speak out.

~Martin Niemöller (1892–1984)

3

Agreed, if you want to voice your opinion, it is very important that you submit your comments to the CFTC. And to re-emphasize, it is also very important that any emails you send to the CFTC contain [B]“Regulation of Retail Forex”[/B] in the subject line and you include your address and contact information in the email.

While traders have access to 100:1 leverage, very few will get close to using that entire amount in my opinion. Where this has a greater impact is on the need for traders to deposit or tie up more of their money to trade the same position size. For example, here is how the reduction in leverage to 10:1 would affect the amount of USD margin requirement you are required to set aside for a 10k mini lot position in one of the 4 major currency pairs:

[B]Assuming Current Margin Requirement in USD is:[/B]
EUR/USD: $160
USD/JPY: $100
GBP/USD: $180
USD/CHF: $$100

[B]Margin Requirement at 10:1 leverage[/B]
EUR/USD: $1,600
USD/JPY: $1,000
GBP/USD: 1,800
USD/CHF: $1,000

To open the same mini lot in EUR/USD, you would need an additional $1540. Not an inconsiderable sum. And the pip value remains $1. And if you’re trading a standard lot of 100k, increase those amounts by 10.

4

The same old crap that I’ve come to expect from the nanny state.

I sent my letter several days ago.

5

Forex is not likely to come to America anymore.

I think they’re not doing it to benefit us, why do you think they’re doing this?..

Thanks God Forex is GLOBAL!

ACM was right to move out…

6

Hope i am permitted to send this across the board.

7

Please stop your spam. It’s annoying. If you’re that concerned, get a non-US broker and move along with your day.

8

Several different threads have been started on this subject, both here on [B]Newbie Island,[/B] and on [B]Forextown.[/B]

For anyone just joining this conversation, here are links to the other threads which have been started so far:

http://forums.babypips.com/forextown/31776-you-really-should-read.html#post163384

http://forums.babypips.com/forextown/31815-interbank-fx-opposes-cftcs-proposed-leverage-limits-10-1-a.html#post163715

http://forums.babypips.com/forextown/31823-cftc-leverage-change-10-1-us-what-do-you-think.html#post163760

CFTC Changing Retail FX Rules in the US? | Forex Blog: Espipionage

I think it’s critical for every trader to understand the point Jason Rogers made in post #3 on this thread:

You may not need more than 10:1 leverage in any of your trading — but, if the 10:1 leverage rule is implemented,

[B]you will likely have to fund and maintain a LARGER ACCOUNT just to be able to trade forex.[/B]

Scroll back and re-read Jason’s post.

This 10:1 leverage rule — if it stands — will put forex trading out of reach for many very small traders.

9

but that is not problem on nano and micro accounts isn’t it? With a micro account you will only need $100 and get a 10:1 leverage.

So what is the fuss?

10

Thanks Clint! You made this point even clearer.

Explaining how the proposal is going to impact the actual $$$ in your account is an eye opener.

11

Too bad,I got infraction for spread this message today.I thought many people should be aware of this development as its impact may drive most out of forex and futures trading.But rather than saying thank you,all what i got is infraction.I am disappointed.

12

I would also like to know this. This change would even affect nano and micro accounts, yes?

13

Yes it will. You will be required to set aside 10% of the notional value of your trade according to the new proposal.

So if you are trading a micro lot, 1k of USD/JPY, your margin requirement will go from the current 1% requirement of $10 to the 10% requirement of $100. The pip value remains the same.

14

The CFTC has started adding proposal comments to the website. Here is where you can see your comment:

cftc.gov/lawandregulation/federalregister/federalregistercomments/2010/10-001.html

(for some reason the hyperlink is not working, copy/paste into your browser. Or maybe someone else wants to give it a try)

15

Thank you for the explanation. That’s horrible! This will not be good for me.

16

Just read the comments - they’re brilliant and on point, especially the one talking about Cadillac, money-hungry, politicians. Ha!

17

That’s, uh…, blowing it out of proportion. The holocaust and a proposed CFTC regulation are worlds apart.

18

I have just read some of the comments from the web address and some are quite good. I also have sent an email stating my concerns to the secretary. I hope we can get more traders to voice their concerns. I know this new regulation would stop me from trading.

bill

19

The recent changes in regulation by NFA and proposed changes by CFTC are concerning to me. Though I’d like to believe the main reason for government to implement these changes is for consumer protection, seems like consumers actually are inconvenienced by these changes and are just opening up accounts with the foreign counterparts of the US brokers. Most US brokers now have operations in London and other countries where they can circumvent the US restrictions. Now, my question is - how is the US consumer better protected if he is sending his money to another country. Not only that, I mean you’re investing less in US companies and driving business abroad.

All of this just seems pretty bizarre to me. Any thoughts?

20

This is all politics. Anyone notice you can trade futures with 50:1 leverage? the CFTC is trying to push traders on exchange. Remember CFTC is run by people from the futures industry. CFTC is nothing more than a division of hte CME. Let them know how you feel! They think they can sneak these rules through with little objection. But we need to raise hell people.

email <[email protected]> now if you haven’t already!