Major Forex Regulation Proposed

[Eric Johnson]

The CFTC is trying to change leverage requirements and control all US forex transactions. This will result in maximum leverage of 10 to 1 leverage on all accounts.
The action is open to comment for a time, and I hope it is stopped. I do not want 10 times more of my money deposited to trade the same size lots. For one thing that money is already subject to plenty of regulations. It also makes it subject to loss if there is more large financial problems. I will probably only trade with foreign brokers, and that is so much extra paperwork and expense to make transactions.

Here is a link to learn more, sorry it has a pop up, but it was one of the best articles,

http://www.fxstreet.com/education/fo...010-01-19.html

here is where to write to send comments

http://www.forexcrunch.com/act-again...rage-proposal/

I guess this is an active email secretary@cftc.gov

[tradersky]

its the cme influences

[thalestrader]

As long as it doesn't effect an American's ability to open, fund, and trade an off shore account, let them do whatever they wish. Personally, I would welcome more liquidity flowing to the CME futures. There actually is an EURJPY listed future, but no one trades it. What a shame!

As a friend of mine stated, however, I doubt very many bucket shop customers have the funds to trade futures, so any hoped for increase in trade flows to the listed futures is likely mere misguided wishful thinking.

Best Wishes,

Thales

[Eric Johnson]

Hi,
This is a timely discussion as Obama announces plans to "regulate" the financial sector, and we see stocks go down. It is my bias, but the big funds always seem to have a way around the regulations, and the smaller trader just gets more run arounds. Also they step up their "security anti terrorism " paperwork, that means they freeze your assets and ask questions later if you have anything unusual. It sounds harmless until you are overseas citizen trying to get a bank account without visiting a branch in the USA, (no personal account=no withdrawal) and so on. My point is that these regulatory commissions need to be kept in check. The US regulatory and anti terrorism agenda has a way of forcing it's way around the globe.
As for futures and the CFTC (commodity futures trading commission ), I enjoyed trading futures for years but, the quote prices for futures are high, trades expensive, and ability to vary lot size is less. I don't really want that kind of direction for forex. They would be placing liability demands on brokers that may lead to higher fees. We may see the decrease in volume in FX if regulation goes too far. Also early 2011 the capital gains may be dramatically increased, if the tax cuts are let to expire.
Anyhow, as they say, love it or leave it, I guess I left a long time ago.

[MidKnight]

Originally Posted by Eric Johnson Also they step up their "security anti terrorism " paperwork, that means they freeze your assets and ask questions later if you have anything unusual.

Hiya,

This 'security' has been active for a couple years already. I had this happen with an IB account about 2 years ago. What annoyed me about the whole thing was that they freeze it automatically and didn't bother to tell me about it. It took me well over 6 hours and 4 separate phone calls until I could actually speak to someone that was able to address the problem. I was livid. Someone outside the USA and outside the EU could really garner some solid business if they setup a quality brokerage firm in locations with less absurd regulation.

Oh yeah, I also think this forex regulation is dumb. Reduce leverage on FX but you can go right ahead and trade the ES with only $500 day trade margin at some brokers. All the leverage reduction does is reduce the small players, and they are not the ones moving the market anyhow, so what is the point? It's not going to stabilize anything.

[Kiwi]

Doesn't it just reduce US based forex companies.

Its like all the anti-corruption legislation. US businesses in the gulf, india or indonesia become uncompetitive unless they add a middle man who pays the bribes ... and if they do they'd better be able to "prove" they didn't know.

The holier than thou ... and can impose it on others ... didn't stop the french and it sure won't stop the chinese. Goodbye US competitiveness.

[DugDug]

There is a big difference between trading/leverage regulation and anti-money laundering (AML) anti terrorism regulation and the tax man. The AML and tax man are going to increase regulations regardless - this is what makes opening accounts, closing accounts, freezing accounts a pain. This is different to the leverage regulation -the main killer for a lot of retail traders. (larger retail traders will get around this most likely as they can be registered as companies or have enough money to qualify as non retail, or will have no problems shifting to offshore)
AML and tax are not going to go away - and are a different animal. This is always moving to a more globally focused coverage.

My first thoughts are that it will generally only hurt those companies that are operating on the edge which will then lead to more concentration into the existing bigger brokers, which means less competition which generally leads to higher costs..... never good for anyone.

Most of the bigger more established companies already properly focus on the regulations and any costs to them will be marginal - it will hurt the smaller or more lax firms (might be a good thing). Clearly however the growth of the retail FX broking firms in recent years have been the driving force of reducing costs and spreads.....getting rid of competition is never good.

However - If it pushes people onto the exchange futures... I am with Thalestrader....that works for me, and I dont necessarily see it as such a bad thing. (I find it hard to sympathise when people complain about the costs and the spreads as they are pretty good.) They will probably introduce minis.They have said previously they are worried about the growth of the largely unregulated retail FX market and at least they may head off possible future problems.
Most retail people probably play with too much leverage. But a 10:1 restriction is probably too harsh.

NET RESULT: regulators are missing the point (but are at least trying to head off an issue in the future), regulation is here to stay and going to increase, competition decreases, costs increase (after massive improvements in recent years), US continues to decline in world dominance of markets and trading.
hmmmm.......not much really changing then.

(I actually don't think the exchanges should ever have been left to run at a profit as private companies - but thats a whole other issue. )
The bigger worry is Wall street not being able to run prop desks.... that is more likely to push up costs and reduce leverage and move people off shore of the US.

[thalestrader]

Originally Posted by DugDug (I actually don't think the exchanges should ever have been left to run at a profit as private companies - but thats a whole other issue. )

I fully agree - exchanges serve a public utility and as such ought to have as a goal to generate revenue enough to cover the costs of operations, and not have the added incentive to increase costs to the public in order to attain a profit over and above the cost of operations..


Best Wishes,

Thales

[DugDug]

thanks thalestrader - the exact reason why I don't think they should be privately owned. I believe they actually do very little for what amounts to a virtual monopoly (it is slightly different these days as they have opened themselves up to being public and hence competition) but I have always believed that its a paradoxical situation where by we have the best people to regulate the markets ie; the exchanges, also under an obligation to maximise their shareholders profits - hellloooo - potential for conflicts. They take no risk as they are not a market maker, the members and insurance companies are the ones who bail out defaults and are largely protected by government regulation and barriers to entry (as the dark pools and FX are now finding out)....what better type of institution to be operated by the government - yet administered by private enterprise under a different compensation scheme to profit in order to work as a public utility for the good of the participants. Funny - just like the old days when brokers collectively owned it.
I apologise for the rant.....its a bug bear of mine, and its Friday afternoon. I took my own advice from another thread - made some money and then went to a good old fashioned long lunch.

[i trade]

Been trading for a long time and I've never stopped to actually think about this.

Please correct me if I am wrong.

So in comparing margin power of ES to that of spot currencies:

Roughly speaking,
ES - $500 in margin allows you to control ($50 x index value of 1100 =) $55,000 in trading power.

Eur/Usd - $1600 in margin allows you to control $100,000 in trading power.

So $1600 in ES margin gives you $176,000 of trading power vs FX giving you $141,000 basis the Euro/usd.

So as margin levels stand presently ES actually offers more leverage the FX does.

I don't get it, why are they picking on FX? I agree 100% with regulating the industry to get rid of the fraudsters but why do they think they have to treat traders like a bunch of kids and tell them what is the correct level to speculate (or gamble as some do) with?