How To Get Ready For The New CFTC Rules

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The new CFTC rules regarding forex trading in the US will come into effect soon. Apart from the infamous leverage limit, they include also include interesting things. Here are important things to look out for.

On October 18th, the new CFTC rules will come into effect, being a major change for the industry. The CFTC originally proposed a leverage limit of 10:1, and this caused lots of protests, also here. The final decision limits leverage on major pairs to 50:1 and to 20:1 on others.

So, let’s get ready:

  • Get used to the new leverage: What pairs do you trade? What is the leverage on each one of them? Do you need more funds to support the new leverage? Do you need to take smaller positions now? How much is one pip worth? You may test all this stuff on a demo account, just to get used to the new numbers. Most traders are used to a leverage limit of 100:1, so this is a significant change.
  • Check out your broker’s profitability: One of the good things that came out of the new regulations is that the CFTC forces forex brokers to disclose the percent of profitable vs. non-profitable forex accounts. From the two reports already released, by FXCM and IBFX, profitability is around 25%. Note that this includes only active accounts in the US, and that the definition differs between brokers. Nevertheless, these figures are very interesting. The profitability level of a broker depends on its traders, but also on the broker. It’s no secret that most traders don’t profit. Still, a relatively low profitability rate for a specific broker may want you to consider switching.
  • Read the new risk disclosure: The CFTC requested an updated risk disclosure to be updated on brokers’ site. This may seem like as long yada-yada, but it’s not that long. It’s actually a quick reminder of what you’re in to. You can read it here.
  • Check if you need to “repatriate” your account: Some American forex brokers have subsidiaries abroad, using different regulations, not necessarily worse than in the US. The implications of the Wall Street Reform known as the “Dodd-Frank Act”, American traders need to be “protected” at home. Your account might need to be moved to the US, and you may not be able to trade until its finished. Check it out with your broker. There still no blocking of US credit cards with offshore brokers, but that’s still a possibility.

What do think? Are there additional necessary preparations for this big change?

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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.

8 Comments

  1. Peter J Shepherd on

    How can they enforce a foreign broker to follow their regulations? Is there a clause in there that says that Americans cannot move to a foreign broker? Another possibility is to form an off-shore trust, such as in Panama or Belize. This then would a separate legal entity and could then trade with foreign exchanges. Has anyone considered doing this?

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  4. It is blatantly obvious that all the CFTC is doing is setting it self up to control US citizens and what they can and can’t do with their money. They are basically trying to tell the US citizen that if they aren’t happy with the package offered by their US broker, then quit trying because we don’t want you trading with a broker in another country.

    That and the second primary president they are setting up is to keep poor people from using forex trading to get rich. If you really look into the leverage they were trying to impose (10:1) and eliminating hedging, it becomes blatantly obvious.

    For instance, with 500:1 leverage, I can easily make $900/week with forex on a $10,000 account. If I was forced to use 50:1 leverage, to have an equivalent risk, I would only be able to make $90/week. 50:1 leverage is not safer, it limits the amount of profit you can generate. A high risk trader is going to be a high risk trader on whatever situation you give them. These rules don’t protect traders at all, they hinder them intensely.

  5. Bonnie Smith Forex on

    The new CFTC rules may sound bizarre to traders but they are actually for their own betterment.

  6. Bonnie Smith Forex – are you saying that its better to keep the poor from getting rich with Forex, than it is to allow them to take the risk, with the possibility of multiplying their possible profit 10 fold?

    America was made great, in part, by risk takers, not a protectionist government, trying to protect everyone from their own decisions.

  7. Exchange Rate Hedging on

    How do the new CFTC rules affect hedging? does this affect traders in speculative positions, or traders looking to hedge existing fx exposure?

  8. are you saying that its better to keep the poor from getting rich with Forex, than it is to allow them to take the risk, with the possibility of multiplying their possible profit 10 fold?