Thread: NEW CFTC proposed regulations for retail Forex: Leverage Subject to a 10-to-1 limit

An important proposal was announced by the CFTC on January 13, 2010, which will affect forex traders whose accounts are with a US regulated broker. This proposal will affect any traders trading with FXCM LLC (US entity).


What does the proposal do?

According to the proposal: "Leverage in retail forex customer accounts would be subject to a 10-to-1 limitation" CFTC Seeks Public Comment on Proposed Regulations Regarding Retail FOREX Transactions . The proposal means that margin requirements would change from the current 1% of notional position size to 10% of notional position size. See next question for how it affects the actual dollar amount of margin required.


How would this affect my margin requirement?

Here is how the reduction in leverage to 10:1 would affect the amount of margin in USD you are required to set aside for a 10k mini lot position in one of the 4 major currency pairs:

Current Margin Requirement in USD:
EUR/USD: $160
USD/JPY: $100
GBP/USD: $180
USD/CHF: $100

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


How do I submit comments to the CFTC for or against the proposal?

If you would like to voice your concern for or against the proposal you can submit your comment to the CFTC by sending an email to secretary@cftc.gov with “Regulation of Retail Forex” in the subject line. You must provide your address and contact information in the email in order for it to be considered by the CFTC. Also, you should be aware that the CFTC has the right to publish your comments, and will publish your email on a public page on their website. The deadline for comments is March 13, 2010.


FXCM's Response

FXCM is opposed to the proposal that would restrict available leverage to 10:1 even for the most widely traded currency pairs and will be actively lobbying against it.


Does this affect FXCM UK?

The proposed regulation, if implemented, would only affect FXCM LLC accounts. US traders with an account at FXCM UK will be unaffected by the proposal as well. FXCM is a global Forex firm with regulated entities in multiple countries. FXCM traders have the option at any time to open accounts with FXCM regulated entities in addition to the U.S. such as FXCM UK, FXCM Asia, or FXCM Australia, which provide flexible leverage levels.

FXCM UK: Forex | currency trading | forex trading | forex broker
FXCM Asia: www.fxcmasia.com
FXCM Australia: Forex | currency trading | forex trading | forex broker

Please feel free to post any questions, and I would be happy to answer them as best I can.

-Jason

WOW!

right, the cause of the crisis - FX trading.

next stop: stop shortselling SP500/dollars.

Jason,

Who is behind this?

Is this just an arbitrary decision by the CFTC or is there some lobby with a vested interest in seeing this change?

Who really stands to gain from this?

Well that is pretty scary if the regulators actually think that retail forex trading is so dangerous as to precipitate some type of financial crisis. Meanwhile the SEC/bank regulators were basically asleep at the wheel and allowed all the major investment banks to underwrite subprime mortgage bonds on the assumption that housing prices would go up in perpetuity. This does not sound like the regulators are focusing on the real problems / potential problems in our financial system

Originally Posted by sunbay

Jason,

Who is behind this?

Is this just an arbitrary decision by the CFTC or is there some lobby with a vested interest in seeing this change?

Who really stands to gain from this?

Hi sunbay,

The decision came from the CFTC, but I won't be able to speculate about any hidden motives behind the changes. I have to be very diplomatic in my answers of course. (Maybe the CFTC didn't want to be outdone by the NFA's leverage reduction in August ) The CFTC proposal outlines this was done due to the "extreme volatility of the foreign currency market [which] exposes retail forex customers to substantial risk".

The Forex Dealer Coalition (FXDC) has outlined who will be the losers in the end. Francesc of FX Street outlines the highlights from he FXDC in his blog post here Francesc’s Weblog Forex Dealers Coalition Says US $1 Billion Industry In Danger If CFTC Proposal To Limit Leverage 10 to 1 Passes .

Who stands to gain? Most likely non-US brokers as traders look elsewhere for more flexible leverage.

FXCM isn't against tougher regulations. We welcome the proposals intent on cracking down on forex fraud by having referring brokers register with the NFA and giving the CFTC anti-fraud authority; however, if the reduction in leverage pushes traders overseas, it may drive that business to unregulated dealers where there is even less or no oversight.

If you would like to voice your comments for or against the proposal, it is important to email the CFTC at secretary@cftc.gov. If the response is large enough, traders could make a difference.

Jason

Jason,

Thanks for the reply and your thoughts on the matter.

My e-mail has already gone out to the CFTC.

sunbay,

You may want to send one to the SEC/bank regulators, as well. There site URL is SEC Addresses: Headquarters, Regional, and District Offices. They may have recently encountered some additional problems along the way.

I submitted my email to the cftc and will follow with another to the SEC. My question is whether I will be able to open an account with fxcm through another country like the uk?

Originally Posted by ComethMoney

sunbay,

You may want to send one to the SEC/bank regulators, as well. There site URL is SEC Addresses: Headquarters, Regional, and District Offices. They may have recently encountered some additional problems along the way.

Originally Posted by smart-profits

My question is whether I will be able to open an account with fxcm through another country like the uk?

i think if you do that, you will be prosecuted as a terrorist and a danger to the american people.

leaving out the social discomfort that you will feel from your neighbours, watch out for black helicopters landing in your house garden.

I have a UK FXCM account.....do you know if these new regulations are being considered offshore as well ? In your opinion, are these increased stateside regulations likely to act as a precident or overseas brokerage houses as well ?

It should also be noted there is no stipulation as to who can comment on the proposal. This affects all FX traders in some way shape or form.

If it doesn't now it could someday soon. All FX Traders foreign and domestic to the U.S. should post comments regarding the decision of the 10:1 leverage.

Additionally you could take it a step further and also comment of the NFA rules that have already taken effect and the devastation the rules have had in regards to consumers going to off-shore accounts with less restrictions on the trader.

Remember the pool of FX traders is large in comparision to pretty much any market. The FX market trades $3 Trillion a day. More than any market and probably more than several markets combined.

If we stand united as one, we can not fail. We must spread the word and ignore the naysayers. Everyone should get involved to fill comment letters and help spread the word.

We have 56 days left to get this silly rule defeated. Let's remain positive and stand together on this. Fractured we fail. United we stand.

After you submit your comments to the CFTC please help spread the word.

Originally Posted by Jason Rogers

Hi sunbay,

The decision came from the CFTC, but I won't be able to speculate about any hidden motives behind the changes. I have to be very diplomatic in my answers of course. (Maybe the CFTC didn't want to be outdone by the NFA's leverage reduction in August ) The CFTC proposal outlines this was done due to the "extreme volatility of the foreign currency market [which] exposes retail forex customers to substantial risk".

The Forex Dealer Coalition (FXDC) has outlined who will be the losers in the end. Francesc of FX Street outlines the highlights from he FXDC in his blog post here Francesc’s Weblog Forex Dealers Coalition Says US $1 Billion Industry In Danger If CFTC Proposal To Limit Leverage 10 to 1 Passes .

Who stands to gain? Most likely non-US brokers as traders look elsewhere for more flexible leverage.

FXCM isn't against tougher regulations. We welcome the proposals intent on cracking down on forex fraud by having referring brokers register with the NFA and giving the CFTC anti-fraud authority; however, if the reduction in leverage pushes traders overseas, it may drive that business to unregulated dealers where there is even less or no oversight.

If you would like to voice your comments for or against the proposal, it is important to email the CFTC at secretary@cftc.gov. If the response is large enough, traders could make a difference.

Jason

Jason,

My e-mail has already gone out to the CFTC and SEC

This is another assault on the individual.

When will Citigroup have to allow for the 32 trillion in derivatives on it's books? Will they need to raise 3.2trillion to meet this ratio? (oh, I forgot, too big to fail) But the bonus payments keep on rolling on.

Financial politicians lack vision. At what point will the average citizen in the US reach their breaking point? I never thought that 'Animal Farm' would become a model for US society but it is heading that way.

Is there a link on the web we can globally protest against this ruling?

Originally Posted by straty01

This is another assault on the individual.

When will Citigroup have to allow for the 32 trillion in derivatives on it's books? Will they need to raise 3.2trillion to meet this ratio? (oh, I forgot, too big to fail) But the bonus payments keep on rolling on.

Financial politicians lack vision. At what point will the average citizen in the US reach their breaking point? I never thought that 'Animal Farm' would become a model for US society but it is heading that way.

Is there a link on the web we can globally protest against this ruling?

Aside from it is an assault on the individual retail brokers clearing abilities is pretty good. There is no need for a margin change...If trades weren't being cleared properly then maybe.

There has been such a public outcry over the perceived lack of regulation which led to the recent financial crisis. However, the SEC and banking regulators had the authority to prevent excessive underwriting of mortgage based derivatives, they just chose not to exercise their authority. THe deregulation of the banking industry started under Reagan and reached a pinnacle of absudity under the Bush administration.
It is very sad and scary that this type of retail forex margin changes could potentially be imposed as so many AMerican jobs would be lost and business transferred overseas.