Thread: Are you happy with CFTC rules?

I've looked everywhere and can't find a thread for traders commenting on the CFTC and how it has affected us. Any comments?

I would like to hear from EXPERIENCED TRADERS, not brokers or their employees, that this is a good thing.

Oh, another thing. It will be interesting to watch the "King of the Micro" contests and see how the new rules affect all those huge gains traders made in the past. I can remember the "King of the Mini" contests with 200 - 400 % gains. We'll see what happens now.

I have two accounts, a 400:1 and a 100:1 with both going to 50:1 on 10/18 or sooner. FXCM's 400:1 gives me the freedom to correct trading mistakes. You deposit $500 and you can control $200,000 worth of currency, you can hedge, sell out positions in any order you choose. $500 in the other account gives me control of $50,000 (no hedging first in first out). What I can do with FXCM, I need a month to two months to do in the other account. So you can see it's a slow process and I don't want to imagine how much slower it will be when the accounts go to 50:!. Just think you'd have to put $4000 into your forex account come 10/18 if you want to be able to control $200,000 worth of currency. How is this protecting us? It's just making us deposit more money with the possibility of losing more money to make less potential profits. WHAT A JOKE!

I hate the new regulations. Do they actually understand forex trading? They're trying to save us from losing money. Hell, it's my money. Also, I don't think they realize that a margin call in a forex account is different from a margin call in a stock/option account. In forex you can only lose what's in your account. In a stocjk'option account, you keep paying for margin calls until you run out of money and/or assets, in which time the broker will sell out your position. I have a couple of friends who lost their wealth because of unlimited margin calls in their stock accounts. So can somebody please explain to me how those idiots at the CFTC are protecting me? If anything, they're pricing me out of the market.

This is what I posted in another thread. Let me be clear, I do not fault FXCM for the rules, nor do I fault them for not speaking out against them.

I've waited 10 years to be able to get free from a full time job and do some trading. In the beginning with FXCM, you could trade with high leverage, low margin, trade IN MULTIPLE DIRECTIONS AND CLOSE OUT ANY SINGLE TRADE AT YOUR DISCRETION. Now all of that is gone. Now you can only trade in one direction, and you'd better only have one trade going (first in first out is insane), and you'd better have a lot of money in your account to make a small profit. THANK YOU FOR PROTECTING ME FROM MAKING A LIVING. FXCM goes along with the rules and comments that they are such good little rules. BUT in the beginning, before regulation, the market was CONSUMER DRIVEN and FXCM was responding appropriately. IF I want to ruin myself and wipe out my account, that is my business and I don't need protecting. The government and the regulators are suppose to WATCH THE BROKERS from stealing from us, NOT REGULATE THE TRADERS TO DEATH. But there is no way to fight back and FXCM can't fight back or speak out against this either. They can say they are all for the changes, but look what they were doing even 6 years ago and you will see what FXCM really wanted before regulation. AND STILL, I DON'T SEE ANYONE ELSE LIKE THE BIG BOYS CRITISIZING ANY OF THIS REGULATION. HMMMMM

Hi Okletsee,


Good idea for a thread! I'm sure it will generate great conversation in the coming weeks. Thanks for creating it!

Rob

Can the posters complaining about the FIFO rule give any specific sequence of trades under any hypothetical movements in price where the sequence of trades would be more profitable with hedging enabled than FIFO.

I can't answer the hedging question exactly the way you want, but I can tell you that Daily FX used to have trading tips and suggestions dedicated strickly to hedging strategies. So even the experts used them. How I used them was for damage control. If I got a signal and the trade immediately turned against me, I would hedge in the opposite direction and stop my losses. Once the hedge was in place, no further losses were occurring and I had time to think if I wanted to wait until the next signal and dig my way out with yet another trade, or just take my loses and close out the trades. You can leave a hedged trade run for hours or days without going in the hole. But now with the new margin rates you'd have to be a millionaire to start with to have many trades open at once. Another way to hedge in your favorate pair would be, lets say, to be short in a long term trade for several days, and be scalping long on a five minute chart in the same pair.

thanks Rob, I appreciate you letting it publish

Originally Posted by rmsgikm

Can the posters complaining about the FIFO rule give any specific sequence of trades under any hypothetical movements in price where the sequence of trades would be more profitable with hedging enabled than FIFO.

I have two accounts and one of them is US based, 100:1 margin. With no hedging, you go long on a trade with a 50 pip stop loss. The trade turns against you and it drops 45 pips. You're stuck in that trade until it gets back to even or plus territory. Any short position initiated will close your original position. Your only options at that point is to take the 45 pip loss or double your posiition by buying another lot and adjust your entry point (averaging down). It coould turn into a long process because you're limited in what you can do. At 50:1 margin, this process will further limit your ability to get out of a trade with positive pips. It can be done. But your ability to make money will be limited unless you have a huge equity position. And at 50:1 margiin, I have to believe that there won't be too many of us that will be able to afford it.

Originally Posted by Okletsee

I can't answer the hedging question exactly the way you want, but I can tell you that Daily FX used to have trading tips and suggestions dedicated strickly to hedging strategies. So even the experts used them. How I used them was for damage control. If I got a signal and the trade immediately turned against me, I would hedge in the opposite direction and stop my losses. Once the hedge was in place, no further losses were occurring and I had time to think if I wanted to wait until the next signal and dig my way out with yet another trade, or just take my loses and close out the trades. You can leave a hedged trade run for hours or days without going in the hole. But now with the new margin rates you'd have to be a millionaire to start with to have many trades open at once. Another way to hedge in your favorate pair would be, lets say, to be short in a long term trade for several days, and be scalping long on a five minute chart in the same pair.

My point is that this is equivalent to closing the position for several days and then reentering, except you will save money with FIFO because you will not lose on the rollover spread if keep a position open overnight. So in this case hedging offers no benefit and in fact ensures the trader will loose more money.

rmsgikm

That is certainly how some traders think. Even one of the major brokers stated hedging was a bad idea, but they allowed it anyway because that is what their traders wanted. And that is the point right there. The oversight regulators who supposedly "protect" us are taking away all of our freedom to trade how we see fit and pricing the little guy out of the markets. If I want to trade standing on my head while losing all my money every day, that is MY business. The forex markets for the last ten years were the wild and free New Frontier. The new "Gold Rush", where anyone, big or small, could take a little bit of money and make their big dreams come true. Then the big boys and the government stepped in, in the name of our "saftey", and ruined it all. Same old story, different day.

Originally Posted by Okletsee

That is certainly how some traders think. Even one of the major brokers stated hedging was a bad idea, but they allowed it anyway because that is what their traders wanted. And that is the point right there. The oversight regulators who supposedly "protect" us are taking away all of our freedom to trade how we see fit and pricing the little guy out of the markets. If I want to trade standing on my head while losing all my money every day, that is MY business. The forex markets for the last ten years were the wild and free New Frontier. The new "Gold Rush", where anyone, big or small, could take a little bit of money and make their big dreams come true. Then the big boys and the government stepped in, in the name of our "saftey", and ruined it all. Same old story, different day.

I can appreciate your point of view, your feelings about increased regulation and wanting to keep your choices open about how you choose to trade. You certainly have a right to feel the way you do and to express them freely in this forum.....and I also think that you will find many in the industry who will agree with you.

Having said that, I would like to offer a different point of view on specific points rather than on the new regulatory environment.

1. Hedging - I have never seen any approach or trader who has used this effectively in their trading. When you have a losing trade, the best approach is to just get out. You should know where you are exiting with a loss before you open the trade, that is good trading. By opening an opposite position when the trade goes against you, you have have just locked in the loss. I call it "delaying the inevitable". Basically, the hedge costs money in paying the spread a second time and losing on the spread in rollover every day. So you are paying the banks to keep your losing trade open. The better approach is to just get out, reevaluate and you can always get back in when you want. This has been the opinion of the FXCM Course Instructors from the first day. FXCM did enable this feature based on trader demand and did allow it based on the fact that we are trying to be at the front of automated trading. Some traders use more than one approach to trading and may have a long-term buy on the EUR/USD while their short-term approach signals a sell. We wanted to allow them to be consistent to both strategies by allowing them to buy and sell the EUR/USD at the same time. But for record keeping, I think you are much better off opening two accounts for this type of trading instead of using the hedging feature.

2. Leverage - The main reason new traders get knocked out of the game is using too much leverage. This is a fact. In the DailyFX Trading Course, we recommend risking no more than 5% of your account balance at any one time. That means that 50:1 is more than a trader who is using a solid approach to trading will ever need. This is just more in line with the futures markets and what they have which is being used as the benchmark for this new rule. There are just not enough examples of new traders using excess leverage and making alot of money very quickly. There are way too many examples of traders using too much leverage and losing most of their account balance in a short period of time. Sad...but unfortunately true.

It is the simple approach to trading that has proven to be by far the best approach. That also means identifying your risk before you get into a trade, using protective stops to get out when the market moves against you and keeping your overall risk to a manageable level. The new rules will not keep traders from honoring these points in their approach to trading.

I am not tying to convince anybody about the actions taken by the CFTC or to change opinions, as I have been making these points for years. But as a DailyFX Course Instructor, I will always try to get new traders to trade more like professionals and the new rules do not in any way, keep us from doing just that.

In pdf format hopefully it attached as I had planned.

Originally Posted by Okletsee

In pdf format hopefully it attached as I had planned.

Thanks....but it does look like you would have ended up with more money in your account if you had exited your first short and then sold again the second time instead of using the hedging feature to buy when the market moved against your first sell position.