FXCM Discussion

the solution is not to trade with a usa broker now.............
to my opinion 1:50 leverage is not really worth it for the trader

Read this whole thing...then I'll post another comment for Jason et al.

Quote:
Originally Posted by 7bit
Such a regulation would not fall into their competence. It is not their business to forbid any US citizen to transfer his money to bank (or other) accounts in foreign countries. They regulate trading of certain securities within the US and not how people spend (or earn) their money elsewhere.

Neither you as a private person are regulated by the CFTC (you are regulated by laws but not by the CFTC) nor would your overseas broker be regulated by them. Naturally there cannot be anything about this in any of their documents.
7bit,
Do you think this reply to a trader is just CFTC blowing hot air trying to scare us back to the US. Or can they make it painful to continue to trade oversees through maybe the IRS? Please read the reply below.

Quote)
"Below is an official clarification on the new CFTC regulations which I have received directly from the CFTC:

Dear Mr. XXXXXXXX,

Your email has been forwarded to me for response. In answer to your first question, in the year 2000, Congress amended Section 2(c)(2)(B) of the Commodity Exchange Act (7 USC 2(c)(2)(B)), setting out who is allowed to serve as a counterparty to a retail off-exchange forex transaction; these are often referred to as the “enumerated” or “eligible” counterparties. Among the eligible counterparties were affiliates of CFTC-registered FCMs and financial institutions (which includes foreign banks). It was through these two categories that off-shore entities were allowed to serve as counterparties.

However, two things have changed. First, in 2008, the Congress passed the Farm Bill, which directed the CFTC to register counterparties as either FCMs or Retail Foreign Exchange Dealers (RFEDs). The recently published final rules, which take effect on October 18, 2010, reflect this statutory mandate, so as of October 18th, foreign affiliates of US FCMs will no longer be able to offer to serve as counterparties to US retail customers unless they become registered with the CFTC as FCMs or RFEDs.

Second, although foreign banks are currently able to offer to serve as counterparties, the recently pass Wall Street Reform and Consumer Protection Act has once more amended Section 2(c)(2)(B) eliminating the provision permitting foreign banks to serve as counterparties. This change will be effective in July of 2011.

I realize this is a long answer, but the upshot is, if your “foreign broker” is an unregistered affiliate of an FCM, as of October 18th, it will either have to be registered as an RFED or FCM, or transfer accounts to someone who is. If your “foreign broker” was a foreign bank, it can continue to serve as a forex counterparty to US retail customers until July of next year. Security deposit/leverage rules will apply to all registered entities doing business with US retail customers.

I hope this proves helpful.

Sincerely,


William Penner
Deputy Director, Compliance and Registration
Division of Clearing and Intermediary Oversight
Commodity Futures Trading Commission

(202) 418-5407

"I realize this is a long answer, but the upshot is, if your “foreign broker” is an unregistered affiliate of an FCM, as of October 18th, it will either have to be registered as an RFED or FCM, or transfer accounts to someone who is. If your “foreign broker” was a foreign bank, it can continue to serve as a forex counterparty to US retail customers until July of next year. Security deposit/leverage rules will apply to all registered entities doing business with US retail customers."

if your “foreign broker” is an unregistered affiliate of an FCM, as of October 18th, it will either have to be registered as an RFED or FCM, or transfer accounts to someone who is. (This to me says that FXCM UK accounts will all be forced back to the US on 18 Oct...because they have ties to the US...ie US FXCM LLC)

Now read the above again: "if your “foreign broker” is an unregistered affiliate of an FCM... The way I interpret this language is ALL of the CFTC's power/pull/ability to enforce is predicated on the fact that the brokers they CAN control all have ties to the US as "counter parties". So clearly the requirement for a broker to be forced into these rules relies on the cold hard fact that they are INDEED an AFFILLIATE of an FCM/RFED.

Therefor, fully independent and truly "Foreign" brokers cannot be influenced by these rules/regulations...neither can the trader...this explanation specifically highlights the broker/CFTC relationship...not the Trader.

Jason, et al...thoughts please!!!

There has been some talk on this forum about getting around the CFTC rules by setting up an offshore corporation and trading through there. I am not a lawyer and I am not a tax expert so don't construe anything I say as legal or tax advice. However, I did some research and I have a few "educated layman" insights on this process.

But let me stat more clearly what I mean by example. Suppose you are a private US forex trader named John Smith. Also suppose that you really like some offshore brokerage, say Big Swiss Broker, because they offer 100:1 leverage and segregated accounts so your money is safe from bankruptcy (you did know that in the US it is NOT segregated and NOT safe from bankruptcy didn't you?). Of course the CFTC and Dodd-Frank want to force you to trade only in the US, at 50:1, no-hedging, no account segregation.

So what can you do? Well, one thing you can do is to form an offshore corporation in a variety of other countries (Panama, Belize, etc). So, suppose John Smith creates Smith Belize Trading Corporation (SBTC) in Belize. Then it appears to me (again I'm not an attorney) that it is perfectly legal for SBTC to have a forex trading account with Big Swiss Broker. The reason this is legal is that the CFTC regulations do not apply to a foreign corporation as a trading entity. If the foreign corporation is a broker and the trader is a US citizen then yes the rules apply, but if the trader is a foreign corporation, not a US citizen, then CFTC has no authority and Big Swiss Broker can offer SBTC an account with all the usual features.

Now for the bad news. Since you John Smith form this corporation and own 100% of its "shares", this entity is known according to the IRS as a Controlled Foreign Corporation (CFC). Many wealthy individuals throughout the years have tried to form such corporations to defer or even avoid paying taxes. For obvious reasons, the IRS doesn't like this. So, according to the IRS, certain types of income generated in a CFC are immediately taxable for the individual who owns the CFC. It does not matter whether the CFC distributes this income (say as dividends) or not. The fact that the CFC earned this income makes it taxable for the owner. What types of income you ask? The types of income are referred to by the IRS as "Subpart F" income. Unfortunately, as you yourself can see by looking at this US Treasury Dept report:
http://www.treas.gov/offices/tax-pol...y/subpartf.pdf
foreign currency transactions are indeed included as part of the income you must report as taxable income. Furthermore, if you go this route you need to make sure that whatever country you start the CFC in is a low or zero tax country so that you don't also have to pay income taxes to that country as well.

So what's the bottom line? The bottom line is that it appears to me (as a non-expert) that it is indeed possible to legally trade at an offshore broker (with 100:1 or 200:1, hedging etc) if you go to the trouble to set up an offshore company (CFC) to do so. On the other hand, it will cost you probably several thousand dollars in legal fees and extra accounting for tax returns in order to do so. Furthermore, you won't get any US income tax benefits or deferment from doing so. You will still have to declare and pay taxes on any forex trading gains that the offshore company makes. And, you may even have to pay taxes to the foreign country depending on where you set up your CFC. So the only advantage of doing this is the ability to still trade at higher margin, with hedging and (possibly) with account segregation.

Is it worthwhile to do this? Probably only if you have a really profitable trading system that really needs 100:1 or higher margin, or hedging. If you are somewhat less serious than this, you are probably better off in terms of cost and hassle to just stick with a CFTC regulated broker and live with 50:1 leverage.

Here are a couple of references. You can probably find more by searching Google for "controlled foreign corporation tax" or similar terms.

http://www.avcadvisory.com/documents/pdf/CFC.pdf
http://www.treas.gov/offices/tax-pol...y/subpartf.pdf

Again, this is just what I found by searching Google and asking around. Don't hold me to it. Your mileage may vary.

I had found the same info...looks like the way to go.

Below is FXCM's latest statement which goes into more detail about the new margin amounts once leverage is reduced to 50:1 for majors and 20:1 for non-majors. At this time we are still waiting for clarification on when US residents will be required to repatriate their UK accounts back to the US. The goal is to give you advance notice about when this will take place without any impact on your trading. Here's the statement:

By October 18, 2010, the maximum leverage available with FXCM LLC for trading will be 50:1 for major currency pairs and 20:1 for exotic currency pairs.

http://img821.imageshack.us/img821/9...eragetable.png

“We believe that the reduction in leverage is a reasonable compromise from the initial CFTC proposal of 10:1 leverage. FXCM does believe lower leverage will be to the benefit of traders as higher leverage can often times result in a few losing trades offsetting many winning trades,” commented Drew Niv, CEO of FXCM. “FXCM has already implemented 50:1 as the default margin setting on FXCM LLC standard accounts and, as a result, the new leverage requirements will have a minimal impact on our Standard 10k LLC accounts.”

Additionally, as of October 18, 2010, all referring brokers introducing business to registered Futures Commission Merchants or Retail Foreign Exchange Dealers will be required to formally register with the CFTC as Introducing Brokers and become National Futures Association members.

In anticipation of this rule, FXCM has already initiated procedures to be in compliance as of October 18, 2010. In fact, FXCM began encouraging all referring brokers to seek registration as Introducing Brokers months before the CFTC published its final rules.

I guess I assumed "major" meant the "major currency pairs" as in EU/GU etc...

How the heck is USD/CHF considered a major pair and EUR/USD is NOT???

Upon further review how are ANY of the "200.00 margin" pairs considered major???? SEK/JPY??? Seriously!?

What about micro accounts? Are they gone?

If the list is correct, they take other factor to determine their margin even they are major.

They listed EUR/USE as major as well, look carefully. But apparently different margin...

So... that would make the micro margin requirements to be...

$20 for the USD/JPY
$24 for the CHF/JPY
$30 for the EUR/USD
$34 for the GBP/USD

Micro accounts are still available through both FXCM US (50:1 leverage max) and FXCM UK (400:1 leverage max). The information is listed here http://www.forexmicrolot.com/margin.jsp .

Both EUR/USD and USD/CHF are listed as major pairs in the table. The box on the left is for the major pairs at 50:1 leverage, and the box on the right is for the non-majors at 20:1 leverage.

When calculating the margin requirement, the dollar amount you're setting aside as margin won't be the same for USD/CHF and EUR/USD because the margin is a percentage of the base currency. In a USD denominated account, when you trade a 10k mini lot of USD/CHF, the margin is based on your $10,000 trade size which remains constant. When you trade EUR/USD, you're trading 10,000 EUR which is not equal to $10,000 therefore the margin percentage in USD terms will not be the same as USD/CHF.

Here's another snapshot of the table with the major pairs highlighted:

http://img685.imageshack.us/img685/7...highlighte.png

That's correct, the FXCM LLC (US) micro lot margin would be 10% of what's listed in the table.

Ok thanks Jason!

Well, that sucks...No other way to put it.

What is the point of continuing to advertise UK accounts to US residents if they will have to be repatriated? They are still available but for how long? Maybe the CFTC should look at this type of misleading statements.

Jason,

Do you know how many usa clients that are with your offshore divisions that your company could lose because of these idiotic cftc rules. I can tell you probably a lot. The reason for this is easy. UK offers insured accounts up to a certain amount. USA forex brokers do not offer this. Also, the cftc believes hedging is having one buy and one sell trade open at the same time on the same currency pair which is idiotic. Let me explain why. For example, a trader opens a scalp buy trade on the eur/usd 5 minute chart. Then the trader opens a swing sell position trade on the eur/usd 1 hour chart. The cftc calls that hedging. That is not hedging that is common sense trading as each trade is trading a different strategy with a stop/loss and take profit.

Now what I propose and please take this seriously.
1. Greentrader has started a traders association designed to fight these idiotic cftc rules. Your company should get in touch with him and join forces.

2. All forex brokers such as fxcm and their clients should file a class action lawsuit against the cftc as their rules are clearly questionable as to the enforcement. Such reasons as this legislation can not tell usa clients which brokers they can open accounts with. Also, the cftc has no jurisdiction over brokers in other countries.

Will you respond with that fxcm will take my considerations and think about acting upon them. I will join your company into any potential legal matters and I am sure a majority of your usa clients will as well. If you do not, I am sure your company is going to lose many usa clients that have their accounts with your offshore divisions.

Regards,
Jeff

Hi Jeff,

Thanks for the post.


That is true. FXCM UK offers segregated accounts in accordance with FSA client money rules, whereas the US regulations do not offer the same level of protection when trading through a US broker. Nearly all forex brokers are privately held companies so knowing the financial stability of a US broker beyond what's listed on the CFTC financial data is not always easy to determine. Because of this, FXCM has posted a publicly available balance sheet since January 2007. The most recent statement is found here http://www.fxcm.com/company-profile.jsp .


I completely understand your reasoning here. It is also difficult for traders that want to run multiple EA's on the same currency pair where they may be giving conflicting signals. In order to do this without hedging, a second account has to be opened because of the regulatory rules against hedging.


We always welcome your feedback and suggestions, but please understand that we may not always be able to act on all suggestions (and myself publicly discuss those suggestions). First and foremost as with all US based brokers, we must remain in compliance with laws and regulations if we're to do business in the US.

For those of you not familiar with Robert Green of GreenTrader, the discussion about the Traders Association is located here http://www.greencompany.com/blog/index.php?sectionid=16 .

-Jason

Automated Trading Contest on Strategy Trader

FXCM is holding an automated trading contest which begins October 17. Further below are some important dates to note in order to participate. Contestants will use FXCM's Strategy Trader platform to automate their forex trades during a seven week trading period. If you're going to participate, make sure to register for the demo though the contest page.

The top 3 winners receive the following cash prizes: 1st - $10,000; 2nd - $7,000; and 3rd place - $3,000.


Important Dates:

September 7: Contest registration opens. Begin coding and testing your automated strategy to prepare for the first day of the contest.

October 15: A starting balance of $1,000 will be used for the official contest. Therefore, at the close of trading on October 15th contest demo accounts will be automatically reset to $1,000 and any open positions will be settled.

October 17: Contest officially begins when trading opens Sunday October 17th. Participants should activate their automated strategies for trading. There is a leaderboard on the contest page which will update hourly with the current leaders.

December 3: Contest trading period ends. Final equity levels will be recorded and prizes will be awarded to the top three contestants


FAQ: All information including FAQ's can be found on the contest website: http://www.fxcm.co.uk/automated-fore...ng-contest.jsp

Let me know if you have any questions.

Hello Jason,

I know you and your company have to be politically correct and follow what the cftc states. First the cftc is not a department of the government such as the SEC. There are times when people and companies need to take a stand and challenge things in this country. I am not an attorney but I do believe if forex brokers and their clients get together we can put an end to these idiotic rules such as trying to tell brokers who they can have for clients who they can not. I have two fxcm accounts with fxcm-uk with large balances. If fxcm-uk decides to follow the idiots at the cftc I will transfer my balances out and go with brokers that will not follow the cftc. There are politically correct ways to fight the cftc and usa forex traders along with the brokers should work together on this.

Regards,
Jeff

AS a non USA citizen I do feel for you guys. TO JAson : It's not the point about "protecting" the trader, it comes down to the point that each and any individual should be free to decide for himself. If one wants to use 400:1 and blow his account that is up to him NOT up to the USA to act as a big brother.

Is this the land of the free?