Forex Leverage Limit 50:1 – Will US Traders Run Away?
It took the CFTC a lot of time, but they finally finalized their ruling for forex: leverage will be limited to 50:1 on major currencies, and 20:1 on minors. The pressure against the initial 10:1 proposal worked, but the industry will still change. American traders: Will you stay with your American broker?
In January, the forex industry was shocked with a proposal to limit leverage in forex trading to 10:1. Apart from traders’ comments, an IB coalition was formed to tackle proposed rules against Introducing Brokers, we saw also anger from Congressmen, and of course, forex brokers. This had fruits:
The new rule by the CFTC allows a leverage of up to 50:1 on major pairs, and 20:1 on minors. Also in Japan, the limit is 50:1, and will be reduced to 25:1 next year. This is less than the classic 100:1 leverage that is common to forex trading, and less than the NFA limit of 100:1.
This ruling actually allows the NFA to set even more strict rules that comply with these limitations, but harsher limitations aren’t likely. The rule will go into effect on October 18th. Despite the lower limit, this will still impact the forex industry.
In his analysis of this ruling, Michael Greenberg reports that introducing brokers are “saved” for now. He also finds another interesting point:
An interesting aspect that I think went unnoticed is that SEC/FINRA brokers (like Citi, Deutsche, etc) can keep offering retail forex trading regardless of these regulations, therefore keeping the 1:100 leverage and become more attractive to forex traders than CFTC forex brokers (like FXCM, IBFX, etc).
Will traders flock out of the US and go with foreign brokers? Will they accommodate to the new rules?
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See what other traders are doing in real forex accounts. Check out Currensee. It's free..
From Go Markets site (Australia) (Aaron above) (why – don’t get it):
Due to the new CFTC regulations we can no longer accept account applications from retail clients who are residents of the United States of America
Well, it is obvious at this point that the real intent behind these regulations is to keep poor people from getting rich. To those who have a lot of money, 50:1 leverage is not that big of a deal, because you can open large position sizes safely without fear of a margin call constantly looming on the horizon. If these kinds of regulations continue, I can honestly see another major revolution occurring. You oppress people enough and they will suddenly get to the point that they don’t care anymore because they have no hope. Then the civil war will break out again.
Actually, even bigger folks have problems with it! At 200:1 you don’t need to leave as much money with the broker. And remember, there are no segregated accounts at US brokers, so if the broker goes BK as Refco did, you take a number in line at bankruptcy court with the unsecured creditors. So you don’t want to leave any more money with an NFA/CFTC broker than you absolutely have to. However, Antny, those who are extremely well-heeled ($10 million or more) are exempt from these regulations entirely & can trade abroad with whomever they want at 400:1. Did you know that?
To quote from the declaration of independence:
“Governments are instituted among Men, deriving their just Powers from the Consent of the Governed, that whenever any Form of Government becomes destructive of these Ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form as to them shall seem most likely to effect their safety and happiness.”
Beautifully written, and it seems applicable today to the relationship between US Citizens and their abomination of a government. JMHO.
Not the govts fault. It’s the big banks/CME groups/ futures types that lobbied the perennially corrupt congress to get more business for themselves. Same thing happened when Rubin beat Clinton up for 4 years to get rid of the Glass–Steagall Act and Clinton gave in, figuring Rubin was honest and it would put US banks on an even playing field with the foreign conglomerates. Well the Rubin went to citi brought travellers and the rest is history! Rubin cashed in that year or so for a cool 300 million from Citi. Why are US Bankers far more corrupt than Euro or Canadian Bankers?
DBFX and CITI etc still have 100 to 1 lev.
S
someone mentioned something about protecting the new traders. Well what about the established traders? Are the newbies all that matters now? Besides, just because you have 200:1 leverage, that doesn’t mean you have to use it. It should still be available for those who know how you use it to their advantage.