CFTC Assuming Babysitter Role

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Regulating US forex brokers is one thing. But preventing traders from opening offshore accounts is already another thing.  This is already significant “baby-sitting” and over “protection” opinion. Some brokers are already bringing clients back home. Will US traders be blocked from opening accounts with offshore brokers?

The talk about the new CFTC rules created a lot of angry reactions. Here’s a more creative one – a hip hop song by R.S. featuring L~Reece. The musical production is serious and the words are quite funny.

Thanks Francesc for the song.

And now let’s get more serious.I believe that the 50:1 leverage that was finally ruled is a plausible compromise from the original 10:1 limit that would have created serious damage to the US forex industry. The industry is growing up.

The worries come from the accompanying act – the Dodd-Frank act. It might force US traders to trade only with US brokers.

Michael Greenberg reports that FXCM UK will be repatriating forex accounts of US citizens back to the US by October 18th – the day which the new CFTC rules take effect. Here’s a quote:

All forex accounts for US residents trading overseas will be repatriated back to the US by October 18, 2010.

For US residents with FXCM UK, the switch back to FXCM US will most likely occur the weekend of October 15. The switch will occur over the weekend so that there is no disruption to your trading. The existing username and password you use to login to your account will also remain the same. US residents will receive information very early next week by email confirming the timeline.

Well, FXCM is a big and serious broker that complies to US rules. You may think that traders might just open accounts with offshore companies. It’s still uncertain if this option will remain in the near future, as foreign forex brokers might be blocked – if they get the same credit card classification as online gambling sites, trading with offshore brokers will be quite impossible for US clients.

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

12 Comments

  1. Yoyah, if you think this is creative, you need to get out more. You may not like being corrected, but amongst the ‘angry’ reactions to the new rules were some rather intelligent and reasoned objections; if you care to take another look.

  2. ps I hate the way people make stupid videos like this and others sing their praises. It’s just a cliche beat with a cliche hip-hop voice whining a repetitive simplistic phrase. Real depth and creativity here…not! Must we celebrate every departure from the norm or little recombination of elements, even when it’s just stupid?

  3. Nicholas Kanger on

    Hi Yohay. Long time / no hear from. While the CFTC may ultimately attempt to wield its “lengthy hand” of presumed law beyond the borders of the USofA for individuals, suffice it to say, hypothetically, should someone choose to actually start a foreign corporation (outside the US)that specializes in currency investment / trading, as long as the “incorporator” takes the legally appropriate measures to form such a corporation, adhering to the laws of whatever land outside the US has jurisdication, then, that company, like 1000s of other legally formed multi-national / foreign companies, should be able to “function” normally and lawfully within the confines of that country. Simply put: If you really determine you need to operate as a trading entity outside the US, do so as a corporation, not an individual. Yes, there will likely be cost associated with start-up. But, we know that trading, whether FX or any other instrument, should be treated as a business. And while it may be a pain in the pocket (or ass) to have to go through such extra steps to “loophole” the new regulation, a viable solution does exist to those who have determined that it’s in their best interest to trade offshore vs. the bucking the homeland regs. Good luck to all.

  4. Lots of options for getting around these regulations. Some good foreign brokers do not view themselves as regulated by the CFTC. In many cases, they have regulators in their own countries. So, for those using foreign brokers with no US presence, the sun will rise on October 19th, and their forex accounts will function just as before. A “gambling” credit card classification will not affect a bank wire transfer which is the only way serious amounts of money get transferred to/from a forex account anyway.

  5. Bottom line is the customers at FXCM-UK and Gain-UK will simply bolt & go to a broker like MigBank which plans to keep right on operating as before with no change at 100:1 leverage and no restrictions such as no-hedge or FIFO.

    CFTC is toothless against such a broker. No property on US soil means no enforcement mechanism.

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  7. Ezekiel J. Mack on

    This is a terrible law. I had the best trading set-up at FXCM UK branch, it very reasonable margin limits, 100:1 leverage, and even a hedging function. It was awesome!!! I will now, like any other serious American Forex trader will figure out how to operate outside the US. This just really f#$king sucks A$$!!

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  9. How, exactly, does the CFTC think it is “protecting” traders by making it harder to make a sizable sum of money and easier to get a margin call? Well, they don’t. When you really get down and examine the actual effect these rules have, it becomes obvious that they are just trying to ensure that it is very difficult for poor people to become rich.

    Here is a good example.. i can fairly easily make a profit of $900/week on a $10,000 account using 500:1 leverage. Now, using the same level of risk and the same size account, what happens when you change the margin to 50:1? Suddenly that $900/week goes down to $90/week. Yeah, It is pretty obvious what the real intent is when you look at the actual result.

  10. The rich are exempt from the CFTC’s regulations. $10 million in assets & you can trade with anybody you want at 400:1 leverage.

    Liberals just love to carry on about the “fairness issue”. Why hasn’t this been used against the CFTC with the very liberals who enabled these jackasses?

  11. Jonathan Hackman on

    The Obama administration HAD to look like they were getting a handle on the financial crisis. They have NO control over Wall Street or the big banks. Sooo they go after forex to look like some control is happening. Meanwhile Goldman and the big guys are getting million dollar “prizes” and foreclosures are spinning out of control. We are supposed to be a free country..Why then are we the only forex traders on the planet that CAN’T invest with a foreign forex broker. Maybe the Republicans can get rid of the CFTC ruling. Dodd and Frank should be kicked out of the country..