[MadMarketScientist]

Now that the CFTC has finally weighed in on the proposal to reduce the leverage allowed in forex I'm curious what you all think?

Here is a summary from them:

http://www.cftc.gov/ucm/groups/publi...nalrule_qa.pdf

These go into effect on October 18, 2010 so about 6 week or so.

My interpretation is the leverage will be 50:1 on "major pairs" and 20:1 on exotics. It's unclear what is what - but I would assume the usual's like EURUSD, GBPUSD, USDJPY are major - though you have to wonder what the GBPJPY will be considered, etc... That part is unclear plus it appears they are keeping open the ability to move pairs between these two leverages.

It does appear that anyone who introduces forex accounts now must be registered though they do not have to be guaranteed by the broker if they meet capital requirements. That doesn't impact the retail trader but gives an indication of the regulations being required.

There has been some debate I've seen elsewhere that this somehow removes the ability for US traders to have overseas accounts, which is what many did to avoid the hedging and FIFO rules when those came into effect a year ago. However, I don't see where that is clearly spelled out one way or the other.

Obviously there was a fear they could rule and make it 10:1 so this is probably a good development from the worst possible.

Thoughts?

[SIUYA]

My guess is regards what gets classed as a major they will say something like
"USD, GBP, JPY, EUR, AUD (etc" and that ANY combinations between these will be classed as majors, the rest and any combinations of those will be considered not major.

regards the leverage 50 or 20 to 1 seems about right.
All it will mean is that anyone who is using even more leverage will have to reduce their size.
It may be interesting how it affects spread betting accounts (mainly relevant in the UK)

I feel its all about ultimately forcing everything onto a regulated exchange

[Cory2679]

10:1 would have been too far IMHO...of course the old 500:1, 1000:1, etc. was truly ridiculous (before the last reform)...I don't know that they necessarily needed to push it further...100:1 was ok. I generally just don't like laws that are put in place to protect people from themselves who aren't hurting anyone but themselves (if they're not infringing on anyone else's rights).

Like seatbelt laws...

Laws like that make the statistics better, but at the cost of freedom/rights.

I dunno...lol

[SIUYA]

Originally Posted by Cory2679 »

Like seatbelt laws...

Laws like that make the statistics better, but at the cost of freedom/rights.
l

Off thread a little (or maybe not) but seatbelt laws and similar laws in many places are nothing to do with freedoms. They are put in place because of the costs to society of not having them. Same as the no smoking bans. You can always choose to ignore them, but then in the great freedoms go the costs..... are you going to cover the costs if something goes wrong? or will society?

[Cory2679]

Originally Posted by SIUYA »

Off thread a little (or maybe not) but seatbelt laws and similar laws in many places are nothing to do with freedoms. They are put in place because of the costs to society of not having them. Same as the no smoking bans. You can always choose to ignore them, but then in the great freedoms go the costs..... are you going to cover the costs if something goes wrong? or will society?

Then perhaps activities that are a burden on society should be taxed...not outlawed (which is, indeed, often the case). Smoking tax, obesity tax, whatever.

I guess the seatbelt laws are practically a tax, anyway...I don't know of people being taken away to prison for not wearing a seatbelt...just fined (taxed, in a way).

So, perhaps the seatbelt laws aren't so bad if you look at it as a tax rather than a law against having your seatbelt undone (to me, anyway).

I don't know of smoking being outlawed (I could certainly be wrong)...smoking bans in public places, restaurants, etc. have to do with smokers infringing on the rights of other people (who presumably have the right to breath smoke-free air).

This isn't really even something I have strong opinions about. lol Just some thoughts.

[Kiwi]

Smoking is a cool one Cory because it is absolutely not victimless and because it is slipping towards "outlawed." Its not as though you even really get high!

In New Zealand it will be outlawed in prisons from mid next year. Outlawed.

Why? Because prison officers can sue the state for the damage that passive smoking is doing to them in an environment they can't get away from. So, if you think prison is a deterrent now, imagine if you have to give up smoking when you arrive! I guess they'll put them all on tranqs to get through the grumpy phase!

[SIUYA]

Interesting given the similarities between anti smoking, seat belt, laws etc and Forex rules.
These are all marketed that they protect us from ourselves.
When in reality, they are usually enacted as a result of a cost benefit analysis.
eg; smoking - as I understand it - it was the US states heath care systems in particular, and court cases in Australia that sued the places whereby passive smoking could cause cancer. The people sued were employers, public places etc.
So it became cheaper to ban smoking.
There are some interesting calls around the world to re-asses the current failed war on drugs, via the exact same approach. Are they better pumping the money into health and rehabilitation rather than fighting what has clearly been a failed attempt to stop supply?

So apart from trying to force most people onto exchanges for better, centralised regulation and monitoring, and by reducing excessive leverage (probably not such a bad thing) what other cost benefit analysis would there be in FX? Maybe they should protect us from the banks..... it certainly might be cheaper for us as individuals at least ,

[Kiwi]

I think the benefit is "I did something so you should vote me in"

and the second one is that it doesn't impact on campaign contributors who generated the real problems. Fix the little guy to protect political scum. Warms the heart.