[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?

[DugDug]

From the CME website
INITIAL MAINTENENCE
S&P 500 (SP)-S&P 500 FUTURES (SP) Spec $28,125 $22,500
Hedge/Member $22,500 $22,500
S&P 500 (SP)-E-MINI S&P 500 FUTURES (ES) Spec $5,625 $4,500
Hedge/Member $4,500 $4,500

So I am not sure where smaller margins of $500 comes from.

Also I think they are largely looking to pick on FX for a few reasons ....
1) there has been phenomenal growth in the retail FX market in recent years - this always worries people due to bubbles, regulation not keeping up with progress and companies being able to over things like 500 x leverage.
2) its not on an exchange - one of the key ideas is that they are trying to push a lot of OTC business onto exchanges including the things that a lot of the institutions do.
3) FX retail is an easy target. However I would not forget that some of the big banks and institutions are getting close to being massively overhauled as well - its just they have better lobbyists to fight or at least delay and better influence the politicians.

[Eric Johnson]

I have traded with many brokerages, companies like JR futures have small S+P mini margin levels, and forex brokers offer varied leverage. Basically I hope that those who are concerned do send an email, and we can hope these regulators can understand things like decreased tax revenues, brokerages losing money, investment going overseas, and so on. I think I read that there will be a restructuring of brokerage liability, and that may include excess cash reserve, or insurance for them, aka higher fees.

[thalestrader]

Originally Posted by DugDug »

So I am not sure where smaller margins of $500 comes from..

Hi Dug Dug,

Many futures brokers allow special "day trade"margin for the e-mini's, with $500/contract having become fairly common. Funny that the CFTC is coming after FX margin, but no one seems to mind the e-mini futures margin. That is why I suspect this has everything to do with Obama & Chicago and nothing to do with a saving retail traders and there $500 bucket shop accounts. The motive is not consumer protection - it is to move more trade flow to the CME. If the government were smart, they'd treat bucket shop bets like table gaming bets, and collect a 1/10th of a pip "tax" on every bucket shop bet. As far as I know, there is no limit on how much someone can bet at a casino. Why is the governent worried I might lose some chicken scratch with a bucket shop but allows me to ose my house to the Sands? Why else would the government suddenly become interested in the "well being" of three figure accounts? It is hard for me to see how this is not related to directing trade flows to the exchanges.

Best Wishes,

Thales
Best Wishes,

Thales

[DugDug]

I agree thalestrader, thats why in the other parts of my post points I think that the retail FX due to their growth and the fact they are off market are an easy target. Ideally by the better lobbyists to push things onto exchanges. How better to save retail traders!

I thought if you were actually trading via the exchange there was a minimum requirement of the margin set by the exchange as a client, unless the broker amalgamates everyone's trades via the day and acted as the one client. - you learn something new every day. thanks.
Maybe that will be the next easy target.

My view is that if firms are offering excessive leverage to retail clients who cant prove themselves as competent traders first. ie; they start off with lower levels first, then its much the same as a bank continually sending out credit cards to people who can least afford it, casinos who encourage the poor to gamble knowing the odds are against them and such similar often frowned upon practices. (even if you or I don't necessarily frown upon them)
Ultimately it is up to/or should be up to the individual to police themselves.

Did you notice Goldmans CEO Lloyd Blankfein distance himself from being a bank in the recent hearings..... in summary I heard the gist being - we are a market maker, we are not there to act in the best interests of our clients, they were big enough and professional enough to know what they were getting themselves into. PYA seems the name of the game.... always has. Always will be.

[thalestrader]

Originally Posted by DugDug »

Ultimately it is up to/or should be up to the individual to police themselves.

With respect to financial risk taking, I agree (I would not presume murderers and rapists could be expected to "police themselves," for example).

I also would have let the banks fail. The real kick will come if these corporations which were saved only by government aid ultimately fail anyway.

Capitalism is dead! Long live Capitalism!

Best Wishes,

Thales

[robertm]

Originally Posted by thalestrader »

Capitalism is dead! Long live Capitalism!

Thales