The other day I posted Increasing Regulation of Retail Forex Trading discussing the continued efforts of the CFTC and NFA in terms of regulating retail foreign exchange trading in the US. I came across a discussion on Trade2Win today which made me want come back to the subject, though.
The thread starter asked the question “10:1 could this be the new leverage in the US ?”. This came from a single line in the CFTC”s communique:Â CFTC Seeks Public Comment on Proposed Regulations Regarding Retail FOREX Transactions, dated January 13, 2009. The line in question comes in the second to last paragraph and says “Leverage in retail forex customer accounts would be subject to a 10-to-1 limitation.” Folks are jumping all over that as meaning the CFTC is going to cut trading leverage to a maximum of 10:1. I disagree.
Firstly, the one line is in a write-up which otherwise focused entirely on requirements of brokers in terms of capitalization, compliance, transparency, and communication. As such, I think it relates to the leverage brokers will be permited vis-a-vis the balance of customer accounts, not what the customers can actually trade.
Secondly, the NFA only a short while back set a new 100:1 cap on the leverage brokers can offer retail traders (see New NFA Retail Forex Leverage Restrictions). Why in the world would they be coming through with another change at this point? They haven’t had much time to gauge the impact of that adjustment.
Thirdly, this is only a “public comment” thing. Even if the CFTC was contemplating cutting trader leverage to 10:1, there is absolutely no doubt in my mind that there would be way too much negative reaction to that kind of move for them to actually go through with it.
So, in my opinion, all those who are calling for the end of forex trading in the US are seriously over-reacting.
By the way, if you’re interested in see how the various US brokers compare in terms of size, here is the CFTC’s latest financial report including all Forex and Futures brokers. BabyPips member Clint has posted a listing of just the forex brokers, by rank, here.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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