Urgently Introducing Myself

Hi to Everyone:

I am in the United States. Been trading small scale FX for about 3 years now. I love it! The leverage opportunities afforded to it and the small trader are a beautiful thing as long as the trader uses the right tools, is judicious, and cautious.

However…I come here today to introduce myself on an emergency basis…

Most traders are aware of what happened yesterday with the Swiss Franc, and how the de-pegging of the EUR/CHF from 1.20 decimated FXCM along with destroying Alpari and other smaller brokers.

My question as a result: What will happen to the small trader in the US? Should I continue working on my small Lua programs for FXCM’s Trade Station? Or do I need to start all over with MT4 & MT5 programming and use that platform instead?

Will trading be shut off from the little guy now that leverage’s ugly head almost destroyed FXCM? Will currency brokers tighten leverage requirements in the USA even lower than the 50:1 (for majors) and 20:1 (for exotics) as a result of this?

Will Forex trading be forever shut off from the little guy and only allowable for large deposits and institutions?

These are all burning questions that drove me to join babypips.com and I would love to have some serious insight with this, so I can figure where to take my hobby from here on out.

Thanks for reading my introduction. Just needed someone to talk to about my concerns on this.

Hi TimeValue. Nice to meet you.
I don’t think we have to worry too much about not being able to trade. I think FXCM will bounce back just fine and some brokers like Oanda handled it real well. I think having your funds with the right broker is definitely a big part of trading. The leverage seems set pretty solid right now too in my opinion. Anyways welcome to Babypips

FXCM will be fine as they have received $300 million in financing to continue operations. Your concerns about the future of regulations in the US is entirely warranted. It is highly likely that the CFTC will revisit the leverage issue again and it’s very possible that they could reduce it further, though not the likely scenario. The most likely scenario is they increase regulations requiring brokers to segregate clients funds and maybe buffer capital requirements (things that wouldn’t jeopardize retail trading). We won’t know for sure until the CFTC gives more clues to what they are thinking but I would be lying if I said I wasn’t concerned for U.S. retail forex trading in the future. If the time does come where the CFTC takes measures to make it harder for retail traders to do our work, then letting our voices known to them must be done. Back in 2010 they were about to reduce leverage to 1:10, but backed down after receiving thousands of letters of complaint from traders. One would think they would receive more letters today as trading has become more popular since then.

Don’t you believe it.
Make the most of current leverage & minimal account balance criteria while it lasts because the landscape is definitely changing going forward.

CFTC are still far from comfortable with the current regulatory circuit breakers in place, preferring much lower leverage/higher minimum capital requirements from individuals + more robust capital protection safeguards from brokers.

This event, & the resulting fallout, will merely add fuel to their fire regards further re-structuring of the retail forex environment, which is now once again firmly under the spotlight.

Thanks to Global Macro and Borden for welcoming me:

I just wanted to say for the moment that having the CFTC lowering margin limits for the retail trader would be a mistake. Brokers such as FXCM and Alpari could have bought offsetting options (going long on CHF) to cancel out most of the risks carried with almost all of their clients shorting the Swissy, couldn’t they?

Lowering the margin limits wouldn’t be the solution here, rather having regulations forcing brokers to [I][B]dynamically purchase offsetting risk (similar to a dealing desk)[/B][/I] as trading clients take the opposite side would have made a lot more sense and would have avoided the brokerage disasters seen on Thursday.

This would lead to higher commissions for the trader to offset the broker’s cost of eliminating risk, but having an arbitrary 10:1 leverage limit is even more onerous.

This is really a shame, because FXCM recently lowered its commissions in the months leading up to this disaster. Now FXCM might be forced to revert to a higher commission anyway to help service the new debt to Leucadia [B]on top[/B] of extra scrutiny from the CFTC.

High margin allowance for traders themselves was not the root problem. Improper risk controls by not being mandated to take offsetting positions seems to be the real issue here.

You were right & it didn’t take long either!
Where do you (eventually) see it settling Thalia?

It will depend (for the time being) where you live. The U.S is strangling the retail environment & won’t be happy until they’ve completely snuffed it out. The next stage in the demise will be the gradual squeeze on leverage, margin restructuring & thus much larger minimal capital balances. Quite simply they want rid of the smaller capitalized hobbyist completely.

The Swiss (& FXCM) fiasco has merely accelerated the urgency to revisit & introduce updated regulation concerning the above. It will prompt the eventual scenario where the only retail participation (in the U.S initially) will involve selected brokerage outlets offering c20:1 leverage to high net worth individuals.

Europe & Asia is a different prospect for now, but even over there (particularly within the ultra-conservative FCA) noises are being made about completely overhauling the playing field & they’ll be watching the U.S scenario with increased interest.

I can see 50:1 leverage becoming standardized sooner rather than later, which will then naturally morph into 20:1 putting up severe barriers to the undercapitalized community.

Like I said previously, make the most of current conditions whilst they last & prepare to inject serious cash into your accounts going forward if you intend to hang around.