Forex Leverage Limit 50:1 – Will US Traders Run Away?

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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?

From October 18th, the US forex industry will change. We’ll soon see how this impacts forex traders, forex brokers and forex sites.
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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.

49 Comments

  1. hmmm .. overleverage possibly the number one killer of trading careers, 50:1 is more then enough for most. And in my opinion still high.

  2. 50:1 on majors and 20:1 on minors. It is a very sensible decision. They got it exactly right.
    I dont think US traders will run from this decision.

  3. from 400:1 to 50:1 in a very short amount of time. What’s next? 10:1 doesn’t seem very far off after all. This is ridiculous. The CFTC is gonna keep coming back with more and more and more and more restrictions to forex.

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  5. My broker (Oanda) already has a 50:1 limit so this has zero effect on me. Since Oanda is also one of the largest out there I can’t see it having much affect on serious traders most of which use less than 50:1. It will probably protect a lot of newbies from themselves and prevent some of the more shady brokers from taking advantage of them.

    So I think it’s all good.

  6. In Vegas there are a lot of gambling addicts. To avoid that sheeps getting shaved they should allow to take in to casino only 50$.

    We had the same problem years ago in Slovenia.
    Yes I’ve lost some money but it was totally my fault. Being educated about all stuff is your benefit.
    Experience is good if it’s not expensive.

  7. I already moved all of my Forex accounts out of the US and over to Foreign accounts when the US forced 100:1 leverage. If they ever force me to use only US brokers, then I will be forced to leave the country I was born in. This country is going down the tubes very quickly…

    This is just another way for the rich to get richer and for the elimination of the middle class. If you’re rich and have huge capital, then lower leverage is probably not a concern, but for most of us with smaller accounts, high leverage is extremely important.

    Most people don’t realize that higher leverage can actually be safer as it allows traders to have smaller amounts of money at risk. So, with lower leverage, I would have to have a larger account (more money) at risk to cover my trades and therefore would loose a lot more money if I make bad trades. This new rule is just really stupid. It’s a bunch of ignorant politicians probably thinking they’re making things better when they’re actually doing quite the opposite – ruining another industry and crippling more American businesses.

    • What broker have you moved to, I am trying to find an option that offers higher leverage and phone customer service.

  8. Spot on Bob, spot on, higher leverage does make for safer trading!!! why poeople dont see that is beyond me!! how did stupidity get to rule this country??? how?? somebody !!! please !!!

  9. julio cesar on

    Useless regulation. If someone wants to jump off a cliff, so be it. Its a decision of self.

  10. I already ran away, moving my account to the UK. Now it seems that the CFTC will pull the plug on that too. I’ve been trading for 6 years, wish these idiots would just leave the retail traders alone. As for those that think 50:1 is a reasonable compromise, make your decision to use 50 out of the available 100:1 and let me decide for myself, how much of that leverage I will use on any given trade. Soon, the only safe haven will be a seat at the blackjack table in Vegas.

  11. scopen – why do you say that the CFTC will pull the plug on US traders moving to the UK? I have been scouring the net for answers regarding whether this option will still be available and no one seems to know. Do you have any info you can share?

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  14. Many foreign brokers are laughing at the CFTC and remain perfectly willing and happy to serve US clients. What incredible arrogance our government has thinking it can force its views on the world, as we entire the twilight years of american hegemony. A broker with no US presence doesn’t answer to the CFTC. Are we going to declare war on Australia or Mauritius over forex brokers? Maybe we’ll get VERY VERY ANGRY?!

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  16. While I do agree that for most forex traders leverage isn’t an issue. BUT for carry traders who are interested in the daily swap, leverage is crucial. Otherwise we’d be getting a pathetic 3% interest per year on our bloody trades rather than a return that is worth the time.

    I’m really glad I live in Australia right now, and really feel for the US carry traders. I just hope the idiots from the US CFTC dont influence overseas people into placing restrictions on leverage.

    Personally, if leverage is really that much of an issue, then make some sort of policy so that people who are new to forex have lower leverage and are required to ‘prove’ themselves in order to get access to higher levels of leverage.

    Leverage is CRUCIAL to the success of retail forex.

  17. Is it not just simple simple math; half your leverage means you double your position? I’m sure it’s not that easy or the CFTC wouldn’t be doing this.

    It’s really ashame that some think that they have to protect us from ourselves. Self satisfaction or failure is alway so much more gratifying.

    I guess I have other “Options”.

    GLTA

  18. Larry Folson on

    I had 1 great trade with my Austrian account with IBFX, to day, (sep 7,10) then I got an e-mail, that thay was disabling it, I call and asked why, The Dodd, bill. They will not allow us, to citizens open accounts.

    Yes, that is right, and most likely, FXCM will follow, I have not heard from them, but most likely they will.

    What can we do? Not a thing, I miss Bush!!!!!!!

    Democrats have to be the dumbs people on the planet, how can you change the economy by penalizing the rich?

    It will not work, big money will always control the world, when the dems, tries to get back at the rich, they only heart the small man. Not the rich!!!!

    The rich love it, Jobs is what you what, Oh yes jobs is what you will, get, We will give you your hearts desire and keep you Just, Over, Broke, and be are slaves!!!

    Yes Just keep making those regulations, that keeps money in our camp. Says the rich!!!

    Obama, is not helping the people he is hurting the people. And the dims our to stupid to see it.
    Share This |

  19. IBFX and FXCM both have a US presence. That’s a very different situation from a broker only operating abroad. I just got this email from my Australian broker. It would seem my business will still be welcome there & I can get 500:1 just by asking for it, though 200:1 is enough that I never really even have to think about margin or leverage given the way I trade.

    Dear Client,

    Following a number of enquiries relating to the new CFTC regulations regarding Forex, we would like to clarify GO Markets position on these regulations.

    GO Markets are regulated by ASIC (Australian Securities & Investment Commission) and are not regulated by the CFTC or any other US regulatory body. We have interpreted the Dodd-Frank bill to mean that we can still offer the same, great trading conditions including full hedging capabilities and up to 500:1 leverage for all clients.

    We will continue to keep all clients informed on the matter.

    Regards,
    GO Markets Pty Ltd

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  21. Although I disagree that the CFTC should change the FX leverage, after all we are adults & if we can’t handle it, then we need to stop, I can live with the decision. I use Oanda & have so for many years. They have a 50:1 cap for a long time so I am used to it & honestly speaking, I think it is enough. I will not be leaving the US for a new broker. It is times like this when you will get burned.

    My 2cents

  22. RicL – The 50:1 leverage is not the problem. The biggest problem I see is that offshore brokers like FXCM UK at least stored trader accounts as segregated accounts so that your money was safe in the event of broker bankruptcy. Accounts in the US are not segregated. Yes that’s right, the CFTC is forcing traders to move their money from say UK or Swiss accounts that are segregated and safe into US accounts where trader funds are at MORE RISK than before. This is what pisses me off, not the leverage reduction.

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  24. Forex Leverage Restriction on

    the oct. 18th forex rule is atrocious.

    how dare they mess with our forex again.

    as if the last years 4 digits to 5 digits, 100:1 maximum leverage, no hedging, first in first out and no one cancels the other trading limits were’nt enough.

    they need to let us choose our own leverage
    from 1:1 to 500:1 as we want. it our money!

    some of us use robots or strategies that require higher leverages to be effective.

    let us decide the leverage we need you fools! who wants to double their balance just to trade as they did in August?

    good writtens U.S. brokers.

    my MT4 forex is going elsewhere where i can scalp, hedge, carry, martingale, straddle, trend etc.. as I please and do it at any leverage I choose!

    the problem is the U.S. is in bed with so many other countries who bow and follow their rules it is much harder to find a trusted offshore broker who uses mt4 and accepts new U.S. clients.

    don’t you wish you could hedge or close any open trade in any order you want, don’t you want a “CHOICE” of up to 500:1 leverage so you dont have to have such a huge balance to prevent margin calls?

    Then say goodbye to your U.S. Broker and close your accounts out and go offshore!

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  27. Sick and Tired One on

    “the problem is the U.S. is in bed with so many other countries who bow and follow their rules it is much harder to find a trusted offshore broker who uses mt4 and accepts new U.S. clients.”

    Just go with the Russians. They’ll be happy to stick it to the U.S.

    I’ve just closed my account with FXCM.UK and that’s where I’m going.

    What has come to this country? Pathetic…

  28. 50 to 1 in the u.s. 25 to 1 in Japan next year.
    Says to me a massive move is coming but most of us won’t be able to profit from it.

  29. >50 to 1 in the u.s. 25 to 1 in Japan next year.
    Says to me a massive move is coming but most of us won’t be able to profit from it.<

    You can still get 500:1 at regulated Australian brokers. I don't know anybody crazy enough to actually use that (including me), but you can still do it.

    I was content with 100:1 and am in the process of yanking an account with Gain Capital/UK to the land down under where I have 200:1. That's more than sufficient for my needs. Gain announced they're reducing my account to 50:1 on October 8, so I vote with my feet on October 7.

  30. Wire transfer instructions issued this morning. Forex.com loses an account about 20X the size of the average one. Decided to go a bit early in case I get trapped in positions during the leverage change (unlikely but possible!). My accounts so far have been based in USD down under, but I think for the longer haul AUD seems a much better bet. I haven’t heard about them devaluing their currency now almost at parity with USD. When I first visited their country it only bought 80 cents US. It’s gotten prohibitively expensive & I absolutely LOVE Sydney and its beautiful white sand beaches.

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  32. Robert Woodbridge-Lee on

    The obvious plus side is lower leverage actually increases carry-trade overnight commisions for the account in question.

  33. the leverage may be reasonable, but taking hedging out is ridiculus. if u hedge to stay neutral until a clearer signal comes, now cant be done . You can go around thhis with two accounts but instead of zero margin, now you have 2x the margin. Hedging is a safety move, so removing it increases ths risk. Is that protective of the trader????

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  35. As some pointed out previously, the new leverage rules actually increases risk to traders capital. 100:1 would be workable but 50:1 in my opinion is a bit too risky. I “ran” away to the US when Canada became foolish. Then I “ran” away from the US following the FIFO foolishness last year.

    Traders will always seek to maximize profit and minimize loss by minimizing risk. The more you have to put up to cover a trade, the greater the risk. So obviously, many accounts will flee to countries that wecome free enterprise.

    Apparently Americans are not responsible enough to handle their own money and need to be protected from themselves. That seems to be the opinion of the US government and supported by all parties. Capitalism in the US died years ago – actually it morphed and move – to Russia and China.

    Happy trading.

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  38. I’m sorry, but first the FIFO crap, and can’t issue a trade when the moon is only three quarters risen in the middle of January when the planets are in alignment…

    And now leverage cut by half, and forcing US clients back to US based acocunts, forcing them to trade by the CFTC rules… Wow… That’s just a Hitler move if I ever saw one. 100:1 leverage was breathable, but 50:1??

    Traders will most definitely run. I was about to deposit some money with a US broker, but after finding out about this ruling… I ran. And so will many others.

    Rules, rules, and more rules… it does beg the question where it’s going to end. Next you’ll see legislation that forces the US citizen the inability to open a foreign account, period, all in the name of “protecting the trader”. LOL What a crock of cow dung.

    It’s sad the rules have become so harsh and limited, that the majority have to suffer, because of the few. How inappropriate and misguided. Maybe we should just call the CFTC for what they truly are… another branch of the Gestapo.

    Ya, there will be some fine with the ruling, but many, if not most, will not be, and they’ll close out their US based accounts, and run. I am.

  39. Final answer is that I’ve run (further) away. Gain Capital announced they were repatriating my IRA forex account to the US. I said Yo Mama, pulled the account from them, pulled it from the IRA trustee, ate the penalty & have placed the money with a broker I want that’s not under CFTC jurisdiction. My excellent & regulated australian broker pussed out under the CFTC and closed brokerage accounts for US citizens, but I found another that is continuing to service them so long as they were opened before October 18th.

    When al qaeda flew jumbo jets into buildings I had trouble understanding their rationale, but now I certainly understand it if not actually support it. Our government has gone off the deep end attampting to police the world financially and in every other way. In so doing they’ve earned the ire of many, including yours truly.

  40. Does anyone know of a good fx broker outside of the US that will accept US residents? I’m ready to move my money out of the country. Lower leverage means I need more cash at risk to trade. I would appreciate any recommendations.

  41. 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

  42. 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.

  43. 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.

  44. 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

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  46. 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.