Author Bio

There has been a lot of chatter in forums and blog posts by some well-respected people in this industry about the final ruling of the CFTC regarding forex trading for US residents, and I’d like to express my opinion on the matter.

It seems like the leverage restriction has become less of an issue for traders, especially after Japan has already decided to restrict leveraged trading in FX with similar restrictions.

So we’re left with mainly two restrictions that traders for some reason feel limit their ability to trade or make more money than they already make. The restrictions are the good old “FIFO rule” and “No Hedging” rule, which have been in place for US traders for some time now.

A little explanation of these rules and what they mean (or don’t mean) in reality:

The FIFO rule indicates that positions that were opened on a certain instrument (currency pair) have to be closed in the same order. This means that if I open a 1 Lot position on the EUR/USD and an hour later open another 1 Lot position on the EUR/USD, when I want to close a position I have to close the position that was opened first before I close the second position. The perception of traders is that it’s possible that the first position is losing money and the second position opened later is making money. Therefore, if I close my first position I would be booking a loss, whereas if I close only the second position I would be booking a profit and I can keep my eyes closed and say a prayer hoping for the other position to turn around, booking profit there as well. The reality is that it absolutely doesn’t matter which position you close first to the overall P&L, and closing the losing position first and letting the second one run for additional profit is going to get exactly the same result.

The second restriction is the “No Hedging” rule, which means that a trade cannot hold opposing positions on the same instrument at the same time. The rule is a little more forgiving than this, but in reality this is how it’s implemented in most brokers. Some traders are under the impression that they can open a LONG position and then if it goes south open a SHORT position that would balance out the LONG position. In reality opening a SHORT position though enabling the trader to keep his eyes closed and not realize losses on the LONG position is exactly the same as closing the original LONG position and realizing the losses and it doesn’t really matter what the market is going to do next.

So to sum this up, there is no way in the world that hedging and non-FIFO would have any affect (positive or negative) on the ability of a trader to succeed or limit the profitability of a trader – so stop complaining :)

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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

This week the New York County Lawyer’s Association (NYCLA) hand-delivered a 5-page letter to the CFTC detailing their comments to the controversial proposed rulings. Gotta love it when the lawyer-types get in on the action.

The two main rules they are opposing are

• Proposed rule 5.9 regarding 10:1 leverage because it could have a significant and negative impact on the retail Forex industry

• Proposed rule 1.10 regarding guaranteed IBs on the ground that it is anti-competitive and places and undue burden on Forex IBs

We couldn’t agree more, especially as it relates to the guaranteed IB ruling 1.10. Their letter states the case brilliantly.

Although the Commission’s rationale is compelling, there appears to be an inconsistency between the Commission’s purported goal and the means by which it proposes to achieve this goal. The Rules effecitvely create two classes of IBs – those who introduce off-exchange retail Fore customers to counterparties (“Fore IBs”) and those who introduce customers who trade exchange-traded futures contracts to counterparties (“Futures IBs”) – and subjects these classes to differential treatment.

The letter goes on to address the Commission’s objective for the Proposed Rule 1.10 – to reduce fraud in the marketplace.

There appears to be no clear correlation between a reduction in incidents of fraud and the requirement that Forex IBs be guaranteed. In fact, mandating the registration of Forex IBs alone could suffice in in meeting the Commission’s stated objective. As the NFA has bulicly acknowledged, the buld of enforcement activity occurs amongst unregistered industry participants.

In the letter we submitted to the CFTC, we take the IB ruling one step further as it affects customer choice.

If adopted, the guarantee requirement will interfere with the legitimate activities of many Forex IBs, including those signing this comment letter, which have introducing relationships with multiple forex dealers. We fail to see how customer protection interests are served by denying customers access to Forex IBs that help them make informed decisions about where to trade Forex or by creating circumstances under which every Forex IB will face an inherent conflict of interest between representing the best interests of its customers and the commercial interests of the dealer on which it must rely exclusively for its business survival.

If passed, these rulings will affect the way you trade, the way you are handled as a customer and the choices you have as a trader. The CFTC will make their decisions based on how they think it will impact you. The comment period has ended and they are deliberating in a chamber somewhere. Let’s hope that all of the efforts to help the CFTC see the negative impact of the regulations on traders like you and I are heard loud and clear.

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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 just one week left to comment on the CFTC’s proposed rule changes 75 FR 3282.  This ruling proposes that a Forex IB must enter into a guarantee agreement with a CFTC-regulated Forex Dealer Member (FDM), along with a requirement that the Forex IB may be a party to only one guarantee agreement at a time.  That means that an IB can work with only one Forex broker at a time, and that means less choice for traders and less business opportunity for independent US Introducing Brokers.

If you, like Currensee and the other members of the IB coalition, oppose this ruling, it’s time to make your voice heard.  Visit IBcoalition.org to learn more about the issue and send an email to the CFTC.  Just a few lines will suffice.  The CFTC will post all the comments they receive, and the more they get, the better the odds are that they will change their plans.

If you need more inspiration on the issue, check out Tell the CFTC that one size doesn’t fit all by Dave Lemont and Dear CFTC: who are you really protecting? by Asaf Yigal.

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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

As you may have read in the press release, Currensee is one of the charter members of IBcoalition.org, a group of independent Introducing Brokers united to fight a proposed rule change by the CFTC that threatens our businesses and our ability to serve our customers.  As CEO Dave Lemont and Co-Founder Asaf Yigal have blogged before, Currensee opposes proposed CFTC regulations that would reduce Forex leverage to 10:1 and force Introducing Brokers (IBs) to align themselves with just one Forex broker.  IBcoalition.org is focused on the latter issue:

The IB Coalition recently submitted a 10-page letter to the CFTC and, among other points, suggested the following changes to the proposed rulings

• First, the IB Coalition urged the CFTC to revise the proposed rules to permit a Forex IB to operate either as an independent IB subject to the same minimum capital requirements that apply to a futures IB or as a guaranteed IB.
• Second, the IB Coalition asked the CFTC to undertake a study of the retail Forex markets to assure that the rules it ultimately adopts are based on a solid factual understanding of the markets and are tailored accordingly.
• Third, the IB Coalition proposed the CFTC defer to NFA to set appropriate leverage restrictions as it relates to the proposed 10:1 leverage. An onerous leverage restriction, such as this, creates opportunities for unregistered fraudulent schemes to exploit U.S. customers is contrary to the public interest.

If you’re an independent IB in the US or just an interested party – everybody who trades Forex in the US or has a Forex-related business that does business in the US is potentially affected – please visit IBcoalition.org to learn more about the issue and make your voice 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

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.