CFTC proposal to cut Forex leverage to 10:1

Update (September 1st, 2010):
CFTC has reached a compromise with the Forex Dealer Coalition (FXDC) regarding leverage requirements:
instead of 10:1 leverage cut in the proposed earlier rules, the new 50:1 leverage will be introduced on October 18th, 2010 for all U.S. customers.

Traders as well as US-based brokers are in a light shock as in mid January 2010 CFTC has proposed to cut the leverage in currency trading to 10:1.

The proposal hasn't become a rule yet, but already has spread with the lightning speed across the trading public in US and worldwide. CFTC proposal is to affect all NFA regulated brokers, who, should the rule pass, would be limited to offer 10:1 leverage on all Forex accounts.

The text of the official CFTC proposal can be read here: RIN 3038-AC61

As the news spread, the largest Forex brokers in US has felt a headache knowing what results it can bring.
They have formed a Forex Dealer Coalition (FXDC) to fight against the new 10:1 leverage proposal.

Foreign Exchange Dealers Coalition warns that:

"CFTC’s recent rule proposal, which would limit customer trading leverage to 10
to 1, would be a crippling blow to the industry..."

Namely:
- 90% of those accounts can be expected to go offshore;
- thousands of high-tech jobs involved in the industry will be lost;
- United States could well be costing itself billions of dollars in taxes;
- the problem of Forex fraud will get worse absent legitimate dealers offering retail Forex, while worldwide unregulated dealers which are out of reach of the CFTC will thrive;
- and finally, the most obvious fact: traders will simply not accept 10 to 1 leverage.

All Forex market participants, including individual traders are encouraged to provide their feedback on the new CFTC 10:1 leverage proposal. There are several methods to be heard:

• E-mail: secretary@cftc.gov. Include “Regulation of Retail Forex” in the subject line of the message.
• Fax: (202) 418-5521.
• Mail: Send to David Stawick, Secretary, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, DC 20581.

From the latest on CFTC 10:1 leverage proposal

1. FXDC Coalition has opened a new website http://www.fxdc.org/ where they continue talking about the issues of 10 to 1 leverage rule proposed by the CFTC.

2. The official CFTC site has released a list of some January letters received about the 10:1 leverage cut.
You can read them at CFTC website: Federal Register Comment File 10-001

In general, Forex traders continue to express their disappointment and an overall concern about the proposed leverage cut. The letters contain requests about reviewing and canceling the potentially damaging rule about a new leverage.

Comments on the proposal are accepted till March 22nd, 2010.

3. The CFTC arguments remain that:

"The extreme volatility of the foreign currency markets exposes retail forex customers to substantial risk. Forex dealers currently
extend leverage to their customers at ratios of between 25:1 to 400:1 or higher, which allows customers to control contracts worth significantly more than their cash investment. Given these high leverage ratios, even minor fluctuations in currency rates can exponentially increase a customer's losses and gains. Even a small move against a customer's position can result in a significant loss. Under current practices, customer positions are usually closed out once the losses in an account exceed the initial investment. However, if, for any reason, the positions are not closed out at a zero balance, the customer could be liable for additional losses."

Broker discussion area


trader January 19, 2010

OMG, what a blow! NFA brokers continue to suffer from their own regulators...
If it goes through, a US broker will be one of the lest attractive dealers in the world for most of the beginner traders for sure, while everyone knows that beginners are the best clients for Forex brokers.


trader January 19, 2010

I know that FXCM is actively lobbying against 10:1 rule because they send emails to their clients encouraging them to write to CFTC.


trader January 20, 2010

First, no hedging, now 10:1 leverage.

Foreign brokers must be celebrating now as new clients will run from US to them. No more need to invent new features and compete for best trading conditions - US brokers are out of the competition!!!


trader January 20, 2010

This will hurt small investors, first of all. An individual with a tiny deposit won't be able to participate in his currency market, unless they open an account with non-NFA broker.

Large investors won't suffer as much, since majority is on the low leverage.
Conclusion: Forex industry in the States risks to lose all small investors - a huge money pot.


Interb Max January 21, 2010

InterbankFX is sending emails to thier cilents too. I've got one, few quotes:
"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 CFTC changes
USD/CHF / USD/CHF
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 stand behind the belief that you should be given the freedom and right to choose the amount of leverage that is appropriate for your individual desired risk, and that this basic principle of 'choice' is in jeopardy by the proposed CFTC regulations.
If you feel strongly about the proposal, we encourage you to help determine the outcome of these proposed regulations. You can help make an impact by sending comments directly to the CFTC at: secretary@cftc.gov. "

Interb Max


trader January 24, 2010

this will get passed now matter what!!! just prepare for it!! get ready to leave US accounts...
think about it...the proposal is set to get enacted withing two days before the FOMC announcement in march!!!
coincidence??? i dont think so


MrG January 24, 2010

Just don't beat me up, guys :) I'll be saying something controversial to your opinions.

Think for a moment that Forex has become a place for stupid (sorry) investors, who have not earned anything in their speculative life (even can't exchange money in their local exchange at best rate time, or distribute risks on own bank deposits depending on the fluctuations in the global economy). I'm talking about the basics, where no money is lost during financial operations.

Forex, due to its small deposit minimums and huge leverage, has opened its doors wide to all people who want to play the markets, but may not have skills for it. The problem is, no mater how much money those people bring into Forex, Forex takes those money away from them.

Should we ask ourselves: should these people ever need to enter Forex? Why lure them in knowing that they will lose money? Who benefits from this?

Answers are: these people should not trade. The way to make it happen is by lowering the leverage, so that only traders with serious money - the real speculators - can trade (the way it was before).

Luring new traders is bread and butter for all Forex brokers. With 10:1 leverage this opportunity will be gone - they would need to increase deposit minimums to facilitate trading with a lower leverage, or divide lots into even smaller parts, to allow trading with cents and micro cents.

I think CFTC's goal is to: rise awareness that Forex is not a place for gambling;
make NFA brokers trade with real investors, who has money and skills to trade and and don't need high leverage; prevent losers from losing their money (in US).

Despite CFTC's best efforts, many problems will stay: CFTC can't control Forex industry worldwide, meaning those who want to trade with high leverage and small deposit will go offshore, and so will the brokers, by opening offices abroad.

MrG


trader January 24, 2010

Lol..first of all why do you care if these "STUPID INVESTORS" lose their money?? its their money to begin with!!

second of all.."investors" are now gonna vie for a way around this 10:1 rule..because thats just what people do naturally when they are being restricted!!..which simply means more manipulation to the market! wonderfull move indeed..u watch

MOST importantly...this is just another attempt and step to restrict any profit potential for small time traders!!!

BECAUSE PLAIN AND SIMPLE..NONE OF THE PROPOSAL/ARGUMENTS ARE EVEN VALID in restricting leverage beyond 100:1..the market has been well effecient how it was......why not do the same for BIG TIME commodity traders also??????
MOTHAFUCKERS!


trader January 24, 2010

what they need to restrict are those damn forex commercials on FOXBN and CNBC!!!...


trader January 28, 2010

If you are making money in Forex, you will understand that leverage, along with good money management is the ONLY way to make money.

Think about it.

If you made $50,000 a year with whatever system and money management you used.
And you had 400:1 leverage. Now with 100:1 you are making 25% of that, which is $12,500.
Now if they do cut the leverage to 10:1, you are going to make $1,250
So where is the motivation to even trade anymore? hello !!!!!
Imagine multiplying your current equity by 10 times, just to make the SAME TRADES.
It's not going to happen. They are trying to cut out the little guys from making money, it's plain and simple.


trader January 30, 2010

forex brokers are not a banks to keep money on it with no security to my fund in, thousands of poor peoples made millions of brofit from forex so look to other side, sides of winners.


trader February 8, 2010

In response to the comment 2 above:

400 to 1 leverage vs. 100 to 1 leverage does not mean a quarter of the profits. All it means is that you can place trades of say, 400,000 instead of 100,000 and have the same amount of risk. If you trade a leverage of 400 to 1 you're going to need a lot of extra money hanging around to cover yourself. If 100 to 1 isn't enough, you can just trade more lots. Now 10 to 1 I think is going to have traders both big and small scratching their heads and saying "well if I have to set aside such a large amount of money for a small profit, I might as well just buy a certificate of deposit or put it in a savings account.

Forex brokers choice: