I think you’ve thought yourself in circles here - and come around to a completely ridiculous conclusion.
Let’s look at risk from two sides of the question.
On the one side, we can think of it in terms of the probability of profitability. Leverage doesn’t impact that for the vast majority of systems. If a system has a 65% win rate, it’s going to have that win rate regardless of how large or small one trades. You need a consistent edge to make money no matter what leverage you trade at.
Alternately, we can think of risk in terms of the size of potential losses and/or drawdowns suffered. Leverage most definitely comes into play here, and not in a positive way. Higher leverage means higher losses when they are suffered. In other words, strong money management is [B]more[/B] important for higher leverage trading than for lower leverage trading, not less, because the potential for larger losses exist.
There’s a very easy way to demonstrate this. Test a trading system at different leverage settings. I can virtually assure you that at some point as you increase leverage (and thus position size) the system will blow apart because it will suffer a drawndown from which it cannot recover.
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I agree with your post. As usual accurate and to the point.
Also, a few quotes relating to the rule changes…
“The CFTC told us foreign financial institutions (banks) — who are not supposed to register as RFEDs with the CFTC but rather with bank regulators — are subject to the 360-day deadline in Dodd-Frank. That means U.S. retail forex traders can trade on non-registered foreign bank forex platforms until July 16, 2011.”
"Foreign banks, many of which offer forex platforms to U.S. investors, will be prohibited counterparties because of language in Dodd-Frank Section 742. However, this provision does not become effective until July 16, 2011. While Congress did not leave room for bank regulators to make rules that would allow foreign banks to intermediate forex transactions for U.S. retail investors after July 2011, these foreign banks are still outside of the CFTC’s jurisdiction and thus unaffected by the CFTC’s final regulations on OTC retail forex. Therefore, a U.S. retail trader could continue to trade forex through a foreign bank, with no leverage or hedging restrictions, until July 16, 2011 without running afoul of any of the new rules that have received so much attention. "
" As I’ve been saying all along, if you want to trade this stuff in the U.S., the CFTC very much wants you to purchase futures contracts from the CME (who authored much of the new legislation) - never forget Chicago’s mob history, they don’t like their monopolies disturbed. (Say, what’s Obama’s home state again?)
To this end, fxKnight is in the process of forming strategic partnerships with attorneys, firms, and brokers in key international financial centers in order to assist our American clients with forming corporations and trusts abroad, and moving their trading operations offshore."
May I know how the allegedly omnipresent and omnipotent CFTC (please, forgive me my irony here) intends to enforce US laws on non-US firms in places of their domicile and on what grounds - provided that the aforementioned firms service US customers strictly in places of their domicile?
This proposal from CFTC if becomes officially regulated will have a huge dilemma among the US based forex trader.
While Forex trading is now become a very popular thing that promise future for many individual, it can also brings disaster for many of them that don’t engage the proper trading management.
Maybe if you are someone with huge capital you can trade the forex and if you are someone who’s busting your butt to get a living, then this maybe not the right choice for you to do.
What might happen if this new proposal’s regulated is a huge decreased of individual who trade forex with a US based forex broker. And this might brings another losses to the US financial market eventually since many of them might move to another broker that is not in the CFTC regulation jurisdiction.
This is a joke! Surely we all should get to choose our own risk as appropriate to our funds? Another example of a nanny state looking to gain control? Hmm!
As the limited leverage rule is only valid for US Brokers they will have a hard time to get new customer and hold existing ones. Non US Brokers will be happy to take their customers
Where exactly would you suggest that we get a non-US broker? As of Oct 15… The US doesn’t allow citizens living inside the US to get a US broker anywhere outside the US unless they have a legal residence outside of the US…
That’s what US brokers want you to believe. In reality, there’s no such restriction - it’s brokers that are subject to the US CFTC regulations, not their individual customers. So get yourself an account with a broker like FinFX, Tadawul FX, or FXOpen and have no worries.
I dearly miss my hedging and have been trying to find a new broker since the law changed… Every broker I have talked to has told me no since I am a US citizen… Thank you for the names of these, I will let you know if any work out.
that’s ridiculous! I may be a newbie but it seems that the way to make money (to start with small capital) is to be able to take advantage of the high leverage with good risk management.
I see this move as the elite wanting to keep the ability to make money to themselves… how can someone get started with little capital (less than 10k, and especially less than 1k!) without being able to use leverage!?
You just made the same mistake I did…a couple weeks ago some fool resurrected this thread for a year ago… They settled on 50:1 and that went into effect back in Oct. If you are new in it, then you are already affected by it, and will never know the difference.
