50:1 Leverage Limit – Industry is Growing Up
In less than a month, the new CFTC rule regarding foreign exchange will be in effect – a maximum leverage limit of 50:1 on majors and 20:1 on others. This might be frustrating for some traders, but in the long run, I believe this is a good step for industry.
I believe that a leverage limit of 50:1 should be sufficient for most traders. While the desired leverage for most traders is 100:1, 50:1 is good enough. For traders that were used to 100:1, this can help them with money management – they will risk a smaller portion of their account on every trade.
The original proposal was for a 10:1 limit. While serious traders can settle for this leverage, changing the limit from 100:1 to 10:1 in one day would be too drastic – a step that would definitely damage the industry and send traders elsewhere. And if they would have nowhere to go to, US traders would just abandon the industry.
The CFTC found a good compromise between the will to distance forex from gambling and the understanding that a harsh 10:1 limit will create more damage. Together with a 50:1 limit in Japan (25:1 next year), regulation is slowly limiting the high leverage.
Leverage in forex is still high, but slowly becoming more acceptable for mainstream stock traders. Some “gamblers” might quit the forex, but tougher regulation can open the door to traders that saw foreign exchange as the “Wild West”.
I believe that this move by the CFTC is just part of the industry’s evolution. I think that the majority of American traders will prefer to give up on higher leverage and stay with local and regulated brokers.
It will be interesting to see if other regulatory bodies, such as the British, Swiss and Australian bodies, will follow with this limit. If more Western countries apply such rules, traders will have two options: trusted but limited trading, or unregulated distant brokers. Currently, the US and Japan lead the pack.
Leverage is limited in the “safe haven” countries…
Want to see what other traders are doing in real accounts? Check out Currensee. It’s free..
See what other traders are doing in real forex accounts. Check out Currensee. It's free..
Jack, don’t expect an answer. There is none.
I’m guessing that it will take novice traders LONGER to lose their stash. And that’s all. It is meant to protect the banks and brokers from losing out. The BIG get BIGGER again.
To the writer of the article:
I agree with few post here: please do not get drunk before writing.
* Limiting the leverage has NOTHING to do with “saving people from themsleves”
* However, it has everything to do with “let’s make our club of already rich people more protected”
Most people will use a foreign broker, other will abandon, what is the benefit here for the US citizens ?
If someone would explain…
foreign broker doesn’t work. Foreign BANK gives u another 360 days. Monopolies are great when you are inof one and suck when you are bucking the system.
Before Oct 18th USD/JPY needed $1,000 for leverage..If a margin call came and went unnoticed..oops you lost a grand..After Oct 18th USD/JPY will nbeed $2,000 for leverage..here comes that margin call, while you were sleeping..oops you lost 2 grand..Yeah that sure is a better deal…NOT
>Overseas brokers who are not registered with the CFTC will not be able to accept U.S. residents.<
Nonsense. Any number of foreign brokers without a U.S. presence gladly accept US clients. The CFTC can declare this illegal til they're blue in the face. They have absolutely no enforcement capability against such a broker, or against the customer.
Lowering the leverage, while the market is the same market makes it more attractive by not being the “wild west”? Since when is forex manipulated like a penny stock? attractive for whom?
After 2 years of dummy trading, my dad and I were about a week away from going live. We had been practicing with $1000 accounts, but with this new 50:1 leverage rule our profits are cut by 80%. Basically putting us out of business before we even begin. I can’t believe this.