CFTC proposal limiting U.S. retail FX leverage to 10:1

Posted by Liviu on January 16, 2010 – 2:19PM GMT in useful resources 108276 Comments2010-01-16+14%3A19%3A12Liviu

Hello,

As some of you already know, 2 days ago the CFTC announced the publication in the Federal Register of proposed regulations concerning FX retail transactions. The plan is to set the maximum leverage in US retail forex transactions to 10:1 – that’s 10 times lower than the 100:1 cap set by the NFA a short while back. It’s absurd how they came up with this stuff in such a short time after the 100:1 cap. The proposed rule has yet to become effective, as it is in public comment seeking phase right now. Therefore, in case you disagree (or agree) with the proposal to limit leverage at 10:1, you may submit your opinion to CFTC by e-mailing secretary@cftc.gov including the “Regulation of Retail Forex” in subject line and the RIN 3038-AC61 identification string in the message body. Please be aware that all comments will be posted, unchanged, on http://www.cftc.gov – therefore, ranting about government conspiracies, CME / Wall Street lobbying or writing long lines profanities won’t help. Focus on the leverage limit of 10:1 and how it would affect your trading, if that would force you to move your trading account overseas etc – share only constructive arguments.

-More on the proposed rule:

On forums and blogs: Elitetrader, ForexFactory, Trade2Win, Fxstreet CEO’s Blog, ForexLive, ForexCrunch, FT Alphaville
On CFTC site, Full proposal document (193 pages) – later edit: the full document was removed from the CFTC site and replaced with a 50 pages one, but the original document is still available here

Personally, I agree that lower leverage is good in trading, limiting risk. I got to this conclusion after wiping out my first trading account using a 200:1 leverage. But the 10:1 cap is abusive and ridiculous. Why not letting people decide what leverage to use? I don’t think that the rule will become effective as it is proposed now, but the maximum leverage will be somewhere in between: 25:1 or 50:1. Maybe that’s the whole point of the shocking proposal: to make 25:1 or 50:1 sound decent and seem more reasonable, hence everyone being happy that cap was not set at 10:1. A 10:1 leverage would simply force most small speculators to move their accounts overseas, also forcing U.S. bucketshops to move their offices overseas. It won’t cause the death of U.S. retail FX, as some are over-reacting – but it won’t stop people from losing money either – and would encourage them to lose more money, since newbie folks should open a lot larger accounts to trade mini lots.

The news on this leverage rule and all the recent news on dollar’s strength remind me of a brilliant clip I’d like to share with you. The clip is about (rumors of) dollar’s appreciation and the negative impact on people influenced by greed – so, in my opinion, the clip is highly related to currency trading (risk, leverage, rumors, market sentiment, greed etc). Enjoy watching!