Author Bio

Remember last week when some guy made the news because the airline allegedly threw him off the plane because he was too fat to fit in a single coach seat?  Well, whichever side of that story you believe, it’s another clear example that one size does not fit all.  Sadly, they don’t make airplanes with a wide variety of different seats to fit different people, but online and in financial services, it’s a lot easier to give people choices and customize offerings.

At least it’s easier when the regulators let you do it.  The Commodities and Futures Trading Commission (CFTC), the government body that regulates the US Forex industry, is proposing a bunch of new rules that we at Currensee think are not good for retail traders or introducing brokers in this country.  On the other hand, if approved, these rules would probably be a boon to overseas Forex businesses as US traders take their business elsewhere.  That amounts to less choice and we don’t like it.

In short, the CFTC wants to reduce the maximum trading leverage to 10:1 and they want to force all Introducing Brokers (IBs) to associate themselves with one and only one broker.  Traders will lose the benefit of an IB helping them choose the best broker for their own needs.  A lot of people will end up sitting in the wrong size airline seats, if you know what I mean.

Don’t take our word for it.  Read the CFTC’s proposed rules, and if you don’t like them, tell the CFTC what you think.  Here’s a PDF of the rules change, and here’s how to contact the CFTC:

• Email your comments on this rule change to secretary@ftc.gov with the subject line “Regulation of Retail Forex” and the ID number RIN 3038-AC61 in the body of the message
• Fax them at (202) 418-5521
• Send paper mail to David Stawick, Secretary, Commodity Futures Trading Commission, 1155 21st Street NW, Washington, DC 20581

Note that all the comments the CFTC receives will be posted to their website, including any personal information you provide them.

The CFTC is part of the government, and they should be working for us, the people and businesses of this country.  We all have a voice and need to share it.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Author Bio

The new regulations the CFTC is looking to impose on the Forex industry in the US has been the center of attention in many Forex-related publications lately especially the leverage restriction which is in my mind the least of the issues this bill suggests and draws the attention to the wrong items.

So before I get to the main issues I want to say one thing about the leverage issue – I talk to a lot of traders and the professionals rarely leverage themselves more than 10:1 I have talked to a few very successful traders that use no leverage at all and still make very good money so this restriction will not prevent people from making money and it may help some traders that unknowingly over leverage themselves – this is just my personal opinion and I appreciate the fact that there are plenty of traders that do look for higher leverage when they trade.  If I can appreciate the desire for different levels of leverage by different traders, why can’t the CFTC?

So what are the more critical issues?

When I read the proposed regulations there is a major difference from the regulations that are in place on the Futures industry, which is also regulated by the CFTC, and the spot Forex industry – here are some examples:

1) Leverage – I know I said that 10:1 is not that bad but why the Futures industry that is way less liquid than spot Forex can offer almost 50:1 leverage?

2) Hedging – it’s allowed to hedge in a Future contracts but not allowed on spot Forex – the regulators opinion is that because spot Forex has daily rollovers you can find yourself having a fully hedged position but still lose money every day not being aware of the rollover – Seriously – wouldn’t it be just simper to control rollover?

3) FIFO rules – as you can probably guess you can open and close positions in any order in the Futures or even the Equities space – so why restrict it in Forex? The regulators view is that money managers keep losing positions for a long time and thus hiding their losses and showing only their profits to prospective customers – wouldn’t it just be easier to mandate a comprehensive way for presenting historical performance – the CFTC should take a look at what the SEC has enforced on Mutual Funds disclosure restrictions if they can’t figure out the math on their own.

4) Introducing Brokers – Introducing brokers are individuals or companies like Currensee that offer a free service to traders and fund it by a commission that is being paid by the brokers for the introduction of new business – the proposed regulation would restrict IBs to only work with one broker a restriction that would significantly restrict that business – as you probably have guessed Introducing Brokers in the Futures industry are permitted to work with multiple brokers.

So why is it that the one regulatory body chose to regulate one industry in a completely different way than the other? Especially since instead of trading spot FX I can trade FX future with none of these silly restrictions – can this be because the CFTC, which was originally selected to regulate the Futures industry, is trying to relieve the pains that the Futures industry suffered from the introduction of spot Forex?

How will this end – In my opinion this is highly depends on the brokers – if they can unite and have enough money they will probably start lobbying or even open a legal procedure against the CFTC in a similar manner that the Hedge Fund industry has managed to push regulators off their lawn. If they don’t I would guess that they would probably start offering FX Futures in the US, which are BTW more expensive to trade, and offer spot FX outside the US.

As for the retail traders – they will be forced to do business outside the US which at the end of the day makes them more vulnerable to fraud so by overprotecting the traders the CFTC is actually exposing them even more.

We are working with our legal team to draft a response to the CFTC, if you are an IB or a broker and would like to participate in our response please email us at opposeCFTCregulation@gmail.com to get involved – it’s more likely that the CFTC would listen to us if we unite together.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.