Author Bio

It seems like some of the House Agriculture farm commodities subcommittee including Collin Peterson and Jim Marshall have grilled Gary Gensler, CFTC commissioner regarding the 10:1 leverage reduction.  Here are some of the comments that were made to Gary:

“I don’t get what we are trying to accomplish here by lowering this to 10 to 1,” said House Agriculture Chairman Collin Peterson (D., Minn), saying the proposal appears to put investors’ money even more at risk. “Who are you trying to protect here?”

“If our leverage rules are 10-to-1 and leverage rules elsewhere are 100-to-1, the business is going to move elsewhere. Investors could be even less protected if business moves to a country with lax regulations.”

Now how can Gary Gensler have missed these basic points while drafting his proposal? I can only guess that he probably doesn’t understand the benefits of trading and the adoption of retail Forex as a legitimate asset class.

Thanks for all the traders that have sent comments to the CFTC.  Your voice is heard!

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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.

Author Bio

While the CFTC is recommending a reduction in the leverage allowed in Forex trading to just 10:1 – a rule change that we at Currensee strongly oppose – I’d like to suggest a more scientific approach as to how calculate the ideal leverage that should be offered in spot Forex.  You can read all 50 pages of the CFTC’s proposed rule change in this PDF from their site and make up your own mind.  See below for how to let the CFTC know what you think.

The main purpose of the leverage limit is to ensure that customer funds are secure and that broker can sustain extreme market events while retaining the ability to clear customer positions without defaulting. If customers would trade with higher leverage the broker is more exposed to the market and it can reach a scenario where there is not enough capital at the broker to cover all open positions – This scenario only applies to brokers that are market makers as ECN brokers do not carry any risk on behalf of their customers.

If we take a look at the past two years the only market that didn’t default is spot Forex, and during most of that time, the maximum leverage was over 100:1.  While the stock markets across the world have collapsed, spot Forex remained significantly less volatile and showed tremendous market efficiency – this is largely due to the fact that most brokers have migrated to an ECN model and the others have increased the capital holding thus avoiding such situations.

So according to market efficiency theories the existing leverage is absolutely fine.

If you want to protect customers from over-leveraging themselves and blowing up their accounts, which in my opinion is not the responsibility of any regulatory body, then the process to determine leverage should be this simple: start at the current leverage and see what percent of the accounts blow up, then reduce the leverage to 80:1 and see what change it made in the blow up percentage. Wash, rinse and repeat by moving the leverage down. This takes the leverage down in a more scientific way based on what it actually happening in customer accounts versus just reducing it to 10:1 with no back-up or rationale.

I’d like to see the CFTC assess leverage differently and perhaps this, more scientific approach offers a new perspective. If you agree, please let the CFTC know your views. You can 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.  You can also fax them at (202) 418-5521 or send paper to David Stanwick, 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

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.

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.

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.

Author Bio

There’s another firestorm sweeping its way through Forex circles. Last spring we had the NFA come down with restrictions against “hedging” and new FIFO accounting rules which forced changes in the way some traders and brokers in the US were operating and accounting for positions. That created a massive uproar, and not a little controversy as at least one broker was reportedly reprimanded for misrepresenting the NFA rules change as making stops and limit orders impossible. A lot of folks screamed and yelled about the not wanting regulators protecting them from themselves, and some folks took the opportunity to move their accounts to overseas jurisdictions.

Back in November a new NFA rule setting a cap of 100:1 as the maximum permissible leverage (for the majors and major crosses) went into effect. There was a lot less of a stink made about that move, most likely because the vast majority of experienced traders don’t go anywhere near that kind of leverage most of the time anyway. It changed some margin requirements, but otherwise didn’t really impact that many folks, so there was less squawking.

Now the US retail forex community has a new gripe. This time it is the prospect of the CFTC cutting the permissible leverage down to 10:1. This comes from a request for comment posted by the regulator on January 13th (the full document of the proposal can be found here.) The concern comes from the line “Leverage in retail forex customer accounts would be subject to a 10-to-1 limitation.” The cries of the end of retail Forex trading in the US are coming already, and in all likelihood a move like that by the CFTC would indeed cripple the industry.

That said, there’s no need to panic and shift your account to a foreign broker.

First of all, with the NFA having only adopted the 100:1 leverage limit in November there hasn’t been enough time for a real judgment on the impact of that rule change. It seems highly unlike the regulators will move without having collected sufficient data on the subject.

Second, this is only a request for opinion. You can be sure that the hue can cry from all participants against such a move will be very loud. The odds of that restriction being included in the final set of rules is very unlikely at this point, especially since it would actually make Forex leverage even less than that available in futures.

So everyone can relax. The odds of 10:1 leverage limits are extremely slim. By all means, though, take the opportunity to let the CFTC know what your thoughts are on the subject to make sure those odds remain low.

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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.

Author Bio

While the smoke clears from the worst of the financial crisis and regulators investigate new regulation to prevent another financial meltdown, it isn’t surprising that talks of enacting a Tobin Tax are resurfacing. The Tobin Tax was proposed back in 1971 when the United States first went fully off the gold standard, and has since been frequently discussed, but never enacted.

During November’s meeting of G20 finance ministers, Gordon Brown, the British prime minister, presented the idea once again of a Tobin Tax on financial transactions. A Tobin Tax would place a small tax, between 0.1 percent and 0.25 percent, on all currency transactions. Considering the currency markets have an average daily volume of $2-$3 trillion, we are talking about netting $2-$3 billion per day – a pretty hefty sum. …Continue Reading