IMPORTANT!!! LEVERAGE 100:1 WILL CHANGE!!
Posted: Sat Jan 23, 2010 9:53 pm
By now, you've probably already heard about the proposed rule changes being proffered by the NFA and CFTC. The big change that has everyone worried is a new rule that would limit the amount of leverage a forex broker in the US could offer to 10-1.
Currently, most brokers offer 100-1.
The difference between the two is this:
At 100-1 leverage, you could place an order for one full lot (10 mini-lots) with an account balance of around $1,000.
At 10-1, you would be limited to placing an order for 1 mini-lot, assuming the same $1,000 balance.
For about 90% of the US based retail forex market, this proposed change will be devastating. For US based retail forex brokers, this will all but put them out of business. The main reason most of us got into this game to begin with was the chance to risk a small sum of money and have the chance to earn huge returns. If I now have to put my entire account into play in order to buy a single mini-lot, I might as well open an account with an offshore bookie and start playing Texas Hold'Em again.
When I first heard about this proposed change, I figured that the amount of criticism would be so strong that the NFA and CFTC would back down. After all, these are actually two private agencies whose only source of funding comes from collecting dues and fine payments from their members. If they kill off retail forex trading in the US, they will lose dozens of dues paying members, and potentially millions of dollars a year in income to their organizations.
However, I recently learned something that makes me think these changes have a strong chance of passing. Apparently, better than 90% of all complaints filed with the NFA and CFTC come from retail level traders making fraud complaints against their brokers. The vast majority of these complaints are unfounded, and come from immature traders seeking to blame someone else for their own poor trading abilities. And the NFA and CFTC have had enough of it! They want to rid the market of the knuckleheads who, frankly, shouldn't be trading in the first place, and get back to their original raison d'etre: policing commodities and futures brokers who deal in real commodities (no, currency is not considered a "commodity" in the strictest sense of the word).
So now I'm thinking that unless the NFA and CFTC are flooded with objections from retail level brokers who make sound arguments for leaving leverage at 100-1, this will be all but a done deal in a few days, and implemented as soon as possible by the agencies.
So you have two things you can do to protect your rights to continue trading with a reasonable amount of leverage.
First, file a comment with the NFA describing how a downward change in the leverage rule will damage or destroy your ability to trade Forex. Don't use profanity or make any threats, and don't discuss how you'll pull all your money out of the US and trade offshore in a tax free environment. This will not do any of us any good. Instead, make one or two arguments in favor of why leverage should be left at 100-1. If you earn some or all of your income from trading forex, you might point out that it has been a life saver for you and your family in this horrible economy. Points like that.
You can do this online, and it will only take a couple of minutes. I've tested the link below on my computer, and I can call it up with no problem (as opposed to the links being sent around by various parties, which reult in an error page, at least for me):
http://getresponse.com/click.html?x=a62 ... Bre5I&y=Q&
If for some reaon this link does not work, you can visit www.regulations.gov/search and where it asks for a keyword or ID, enter RIN 3038-AC61
This will take you to the page where you can click the link and enter a comment. As I mentioned earlier, it should only take you a few minutes to fill out the form and enter your comments. But if you enjoy trading forex with US based brokers, it will be time well spent.
Second, prepare for the worst and start looking for offshore brokers who are not affected by the NFA rule changes. I know that Forex.com, FXDD and FXCM have opened UK-based offices, and will transfer your existing accounts to the UK just by asking. I'm sure there are other brokers based offshore who will also take US based clients, but those are the big three in terms of capitalization and market credibility (although I still think FXCM is the anti-christ of forex brokers and I will not have anything to do with them. Others hold them in higher esteem).
Currently, most brokers offer 100-1.
The difference between the two is this:
At 100-1 leverage, you could place an order for one full lot (10 mini-lots) with an account balance of around $1,000.
At 10-1, you would be limited to placing an order for 1 mini-lot, assuming the same $1,000 balance.
For about 90% of the US based retail forex market, this proposed change will be devastating. For US based retail forex brokers, this will all but put them out of business. The main reason most of us got into this game to begin with was the chance to risk a small sum of money and have the chance to earn huge returns. If I now have to put my entire account into play in order to buy a single mini-lot, I might as well open an account with an offshore bookie and start playing Texas Hold'Em again.
When I first heard about this proposed change, I figured that the amount of criticism would be so strong that the NFA and CFTC would back down. After all, these are actually two private agencies whose only source of funding comes from collecting dues and fine payments from their members. If they kill off retail forex trading in the US, they will lose dozens of dues paying members, and potentially millions of dollars a year in income to their organizations.
However, I recently learned something that makes me think these changes have a strong chance of passing. Apparently, better than 90% of all complaints filed with the NFA and CFTC come from retail level traders making fraud complaints against their brokers. The vast majority of these complaints are unfounded, and come from immature traders seeking to blame someone else for their own poor trading abilities. And the NFA and CFTC have had enough of it! They want to rid the market of the knuckleheads who, frankly, shouldn't be trading in the first place, and get back to their original raison d'etre: policing commodities and futures brokers who deal in real commodities (no, currency is not considered a "commodity" in the strictest sense of the word).
So now I'm thinking that unless the NFA and CFTC are flooded with objections from retail level brokers who make sound arguments for leaving leverage at 100-1, this will be all but a done deal in a few days, and implemented as soon as possible by the agencies.
So you have two things you can do to protect your rights to continue trading with a reasonable amount of leverage.
First, file a comment with the NFA describing how a downward change in the leverage rule will damage or destroy your ability to trade Forex. Don't use profanity or make any threats, and don't discuss how you'll pull all your money out of the US and trade offshore in a tax free environment. This will not do any of us any good. Instead, make one or two arguments in favor of why leverage should be left at 100-1. If you earn some or all of your income from trading forex, you might point out that it has been a life saver for you and your family in this horrible economy. Points like that.
You can do this online, and it will only take a couple of minutes. I've tested the link below on my computer, and I can call it up with no problem (as opposed to the links being sent around by various parties, which reult in an error page, at least for me):
http://getresponse.com/click.html?x=a62 ... Bre5I&y=Q&
If for some reaon this link does not work, you can visit www.regulations.gov/search and where it asks for a keyword or ID, enter RIN 3038-AC61
This will take you to the page where you can click the link and enter a comment. As I mentioned earlier, it should only take you a few minutes to fill out the form and enter your comments. But if you enjoy trading forex with US based brokers, it will be time well spent.
Second, prepare for the worst and start looking for offshore brokers who are not affected by the NFA rule changes. I know that Forex.com, FXDD and FXCM have opened UK-based offices, and will transfer your existing accounts to the UK just by asking. I'm sure there are other brokers based offshore who will also take US based clients, but those are the big three in terms of capitalization and market credibility (although I still think FXCM is the anti-christ of forex brokers and I will not have anything to do with them. Others hold them in higher esteem).
