Forex Trading & CFTC RULE RIN 3038-AC61
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FOREX TRADERS UNITE!
There is a new CFTC Rule in the works. It is a very bad call to the retail Forex Trader & market alike. You can view it here:
http://www.cftc.gov/newsroom/generalpressreleases/2010/pr5772-10.html
There is a Blog by a member of BABYPIPS.com & the following is a copy paste from that. Please read carefully:
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The new rules will require all RFEDs (Retail Foreign Exchange Dealers) and FCMs (Futures Commodity Merchants) in the US to register. Also, "Persons who solicit orders, exercise discretionary trading authority and operate pools with respect to retail forex would also be required to register, either as introducing brokers, commodity trading advisors, commodity pool operators, or as associated persons of such entities."
Basically, this means that in the US, all forex brokerages, forex account managers, investment pools trading forex, IBs to registered brokers, have to be registered. I think this is a great thing. It will help potential traders or investors weed out the potential scammers out there by giving them a chance to check out their registration number before giving them their hard earned money.
The next big change is that a minimum net capital requirement of at least $20 million, plus 5% of any amount of retail customer liabilities that exceed $10 million.
Brokers who cannot meet or find the funds to meet this requirement will probably have to move offshore. If you are trading with one of these brokers, it's up to you if you want your money to move offshore with them or transfer your funds to a broker who can meet that criteria. Again, it's up to you where you put your money, but I would seriously consider asking how this will affect your ability to trade and the safety of your funds during transfer.
To find out which camp you're in, please visit the CFTC's most recent financial data page for Futures Commission Merchants or contact your broker and ask them about the proposed changes.
Finally, the new rule change causing a ruckus across the forex industry is to set maximum leverage to 10:1 for retail forex traders in the US...
Ok, I'm feeling a bit torn about this because I'm all about traders not over leveraging their positions, but I'm also about giving those traders who know how to control and manage risk the choice and ability to increase their position size if a trade goes their way.
Also, if this rule does go into effect, it may hold back those new traders who have developed a profitable system and the discipline to manage risk, but have low starting capital, from getting their feet wet.
In my opinion, this is a case of "over regulation," and that "education" for traders is a better solution so that the few who don't know what they're doing with leverage doesn't ruin it for the rest of us who do. The United States of America is the land of the free, where each forex trader should be able to make their own educated decisions about their money and take responsibility for their own actions, right
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The CFTC recently changed to leverage requirements in 2009 requiring investors to maintain a higher margin thereby reducing a considerate amount of speculation. The rationale for a further restrictive change should be thoroughly analyized to determine both the liquidity impacts and market efficiency of increasing retail investors requirements in the FOREX community.
Increases on leverage requirements may not necessarily reduce currency volatility and may prove otherwise as transactions are reduced in the marketplace. Behavioral Finance and other mandated educational classes on both money management and entry/exit decisions should be considered (possible mandated) for retail investors rather than the increased leverage requirements and may prove beneficial for market participants when making decisions and further understanding why human nature is so loss averse (clearly why typically we hold our losers and release our winning trades).
Regarding speculation in equity options vs. FOREX community, analysis between the two may indicate more speculation exists in the option community considering the latter is also a depreciating asset.
In the end, the CFTC should disclose why the agency deems it necessary to change the leverage requirements after recently making them tighter. Does the small retail investor impact the volatlity significantly in the market? If so and the global markets outside the US maintain less restrictions on FOREX leverage requirements, than investors will most likely seek to establish accounts with non-us institutions...not good news for US. If the volatility is not affected by retail investors then education should be the method to enhance awareness on leverage requirements.
The passage of this rule will do great damage to retail forex traders like myself, and will ultimately force traders out of business or force them to take their money to non-US based brokers. This will likely result in loss of jobs and further decreased prosperity for the US economy.
Please DO NOT change the current leverage laws and rules related to trading forex in the US.
Thank you!!
Regulations that enhance the customer's ability to screen brokers in meaningful ways ARE useful, but then I don't suppose many people would argue against that.
It's the order-of-magnitude reduction in leverage from 100:1 to 10:1 that I think represents an extraordinary disservice to traders who have dedicated themselves to practicing their craft.
Those who haven't would be well-served to begin doing so with a smaller amount of leverage, and to have this option is prudent.
But to impose a unilateral maximum leverage on all traders, that's unjust.
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