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CFTC Wants to Limit Leverage to 1:10

January 17, 2010 by

The U.S. Commodity Futures Trading Commission (CFTC) has put up a new regulatory proposition for the market participants to discuss. In addition to the capital, regulatory and risk-disclosure requirements, the FCMs (futures commission merchants) and RFEDs (retail foreign exchange dealers) will be limited to 1:10 leverage maximum. Considering the popularity of 1:100 leverage in the on-line Forex industry, such a limit, if implemented, would hit hard the Forex broekrs registered or operating in United States. CFTC announced this proposal on January 13th and the part about the leverage in it reads:

For example, FCMs and RFEDs would be required to maintain net capital of $20 million plus 5% of the amount, if any, by which liabilities to retail forex customers exceed $10 million. Leverage in retail forex customer accounts would be subject to a 10-to-1 limitation.

The good thing that it’s still just a proposal and that CFTC is expecting a feedback from the market participants to evaluate the necessity and possibility of such means. You may send your opinion to CFTC via the e-mail: secretary@cftc.gov (don’t forget to use “Regulation of Retail Forex” as the subject) or via the postal mail:

David Stawick, Secretary, Commodity Futures Trading Commission
1155 21st Street, N.W.
Washington, DC 20581

In either case include RIN 3038-AC61 identification number in the body of your mail.

If you have any comments on questions regarding the new CFTC rules for the Forex market in U.S., please, reply using the form below.

9 Responses to “CFTC Wants to Limit Leverage to 1:10”

  1. Jon

    I personally am getting sick of their truly retarded regulatory attempts. Anti-hedging was retarded enough and now this? 1:10? This won’t only hurt the brokers but it will hurt most traders unless of course you have a million dollars to deposit and trade. This is utterly retarded beyond reason. Are they serious?

    Reply

    Andrei Reply:

    It’s not a completely unreasonable decision. The higher is the leverage the more commission is charged in a form of spread from each trade. But a strict regulation is a bad way to prevent this commission.

    Reply

  2. Jon

    Commission argument is too old and irrelevant of an argument. Plus, spreads or commission is truly negligible for successful traders. We can all agree on this. What matters is that you cannot regulate risk and this 1:10 will bring a halt to the industry. Unless you can deposit $100,000 and start trading, your earnings will be very small. Unless you are now willing to risk higher with bigger lot sizes. Again, commission and spread is totally negligible. That is a non-issue for all successful traders who are using favorable leverage to make better use of their limited capital or small balances. And this is the primary issue. They are simply trying to squeeze out successful and smart traders out of the market. Only the wealthy and institutional traders will be able to play if 1:10 comes in to regulation.

    Reply

    Andrei Reply:

    The fact that the argument is old doesn’t mean that it’s irrelevant or negligible. Successful traders that make many small trades lose a lot to the spreads. And this restriction isn’t aimed on the successful traders, it’s aimed on the traders that think that the higher leverages are offered for free by the brokers. But, in my opinion, restricting the leverage is a bad way to solve this issue compared to informing the traders. I can’t agree that they are trying to “squeeze” some traders out of the market and I also don’t think that only “wealthy” traders will be able to trade with 1:10 leverage. With 10k account you can trade successfully and profitable with 1:10 leverage.

    Reply

    Lee Reply:

    10K? Your argument is only validating those arguing against 1:10 leverage. And you are wrong, 10K is not enough. You need at least $200K to make decent earnings as you were able to before with a balance of $2,000 or less. And you think 95% of the current traders have 10K to deposit? What do you think is the average deposit or balance of your average trader that make up more than 90% of the traders? Hmmm??? It certainly is not 10K! You are being utterly delusional. Of course they are trying to squeeze out small traders because they are the retards who complain to NFA and CFTC the most. That’s right… successful traders do not complain… losers who know nothing who trade then lose complain the most. And every successful traders made their income on 1:100 and they also want 1:100 leverage. Why? Because even those with over $200,000 balances now must deposit 10 times that amount, depending on their current risk, to cover their margin requirement if 1:10 were to kick in right NOW. Let’s say it kicks in one minute from now, almost everyone would get a margin call. It shocks me just how many people simply do not think clearly.

    Reply

    Andrei Reply:

    Your argument is only validating those arguing against 1:10 leverage.

    Actually I am also against the 1:10 leverage limit :). I just don’t think that it’s an end of the world and I think that trading with 1:10 leverage has its own advantages.

    And you are wrong, 10K is not enough.

    I can’t be wrong about 10K because “enough” is relative depending on a trader. For me 10K with 1:10 leverage is enough. Of course, if someone sets an objective of 100% yearly ROI then 1:10 is quite bad for them.

    And you are wrong, 10K is not enough. You need at least $200K to make decent earnings as you were able to before with a balance of $2,000 or less.

    Wait, are you talking about going from 1:1000 leverage to 1:10? Then – yes, that’s an extremely bad limit for those people. I was talking about going from 1:100 to 1:10. Currently I am trading on 1:100 but my earnings wouldn’t change if it switched to 1:10 (or even 1:1), because I have a rather wimpy strategy. For traders that rely on 1:1000 leverage a change to 1:10 would be fatal – I won’t argue with that.

    What do you think is the average deposit or balance of your average trader that make up more than 90% of the traders?

    About ~$100 or less. I am quite sure about that – at least for the brokers that allow trading with such low accounts. And I don’t think it’s worth discussing that they are “making decent earnings” with such balance, even with 1:1000 leverage.

    And every successful traders made their income on 1:100 and they also want 1:100 leverage.

    Not everyone. I know a lot of traders with huge deposits that prefer 1:1 (no leverage). But of course, majority is probably looking for 1:100 leverage in Forex.

    Let’s say it kicks in one minute from now, almost everyone would get a margin call.

    What makes you think that this limit will kick in immediately and will affect all open positions :)? Even if this CFTC’s proposal will be approved, I think the implementation will be quite gradual. Brokers will simply stop accepting new orders with leverage higher than 1:10 without altering the existing positions.

    Reply

  3. Kungfu Panda

    Just go to a Cypriot broker like easy-forex and forget the CFTC.

    Reply

    Andrei Reply:

    And what if CySEC will also go crazy with the regulations? ;-)

    Reply

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