Worst of all is that this issue will not solve anything. Retail investors closed their accounts in U.S. and will go elsewhere. It is stupid to keep the account with a broker leveraging 1.5 if there are other places that offer brokers 1.400.
We have to make a lot of money to live quiet as the poor.
NFA is proposing 25:1 leverage cap on all non-majors, according to
general counsel at FXDD.
Can you say "screwed?"
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Really not much of a surprise. Have you noticed overnight margins for Futures FX lately ?
Hovering around double what they were a few months back & that equates to about ~25:1 or 4% or so.
And this is for currency Majors on the IMM. Over 6 grand USD for the Euro to take one home.
Exchange minimums, so overnight there's no wiggle room for brokers.
Joined Jan 2008
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Status: Lunatic Supreme
|1,840 Posts
No no, it won't do anything to help ppl lose less money.
Think about it, in order to trade you'd need more margin... which means it takes less loss to reach a point where you have to refund your account. If you don't refund your account to meet the new margin requirement then you can't trade, so most new traders will end up funding their accounts more... with more money per fund, in order to keep up with the margin requirements.
The result is that while each trade may lose less money, when the margin requirement finally comes due it'll end up costing ppl even more money than before.
I cannot tell you how often I've seen this happen with day traders trading stock accounts. The minimum requirement to day trade is $25,000 in the US, I've seen ppl put $50k in, lose it, put another $50k in, lose it again, over and over. I knew one guy that lost over a million dollars trying to learn the markets. If there hadn't been such a steep margin requirement he could've used far less on the learning curve and might've survived to get a handle on things.
That's the biggest benefit to forex trading. The really low margins means we can trade live accounts with tiny lot sizes and little overhead. Instead of spending hundreds of thousands of dollars, throwing it down a rat hole, we can learn to trade for a fraction of that. Anything that makes forex more like the stock market only makes it harder for all of us. It does not help new people at all, it hurts them. It's that kind of convoluted logic that makes a mess of a good thing.
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Really not much of a surprise. Have you noticed overnight margins for Futures FX lately ?
Hovering around double what they were a few months back & that equates to about ~25:1 or 4% or so. And this is for currency Majors on the IMM. Over 6 grand USD for the Euro to take one home.
Exchange minimums, so overnight there's no wiggle room for brokers.
If the market wants to put a cap because of liquidity concerns, that's one thing. If a broker wants to put a cap because of it's concerns, that's another. If regulators want to pass a law that forces a cap... that's completely different. In the first 2 situations we have choices, in the latter... we lose choices.
I think it's a safe bet that most of us control our effective leverage via stop losses and lot sizes. Most of us probably do not trade w/ over 20:1 leverage, when I did the math I found I avg around 10:1, but that's not the point. The point here is that we have people that don't trade, regulators with tunnel vision, trying to enforce their poor concept of this market on all US traders without realizing that the world is a lot bigger than what's outside of their door.
Only for a few quarters if that. If one is bad at trading, whether he blows his account with $1000 once over a month or with $100 repeated 10 times over a year, the account is still gone.
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More than that. Survial rate for stocks is quite high.
FINRA does not apply to spot Forex, only to futures, doesn't it? At least that is what jblang posted in the MB Trading forum.
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No. He said that MB Trading spot forex department isn't registered under FINRA, but rather NFA. Now that is just for that company while other companies might be only registered under FINRA.
No. He said that MB Trading spot forex department isn't registered under FINRA, but rather NFA. Now that is just for that company while other companies might be only registered under FINRA.
Ignored
So if the company I am with is not registered with FINRA, but is registered with NFA, none of this applies, right?
Please do not lose the north. The forex business is a very interesting and exciting because of the strong leverage. Leverage of less than 1.100 would kill the business, is a kind of suicide. Fortunately there are more brokers and more countries with good laws that protect investors.
We have to make a lot of money to live quiet as the poor.
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Joined Jan 2009
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Status: The only way to win is to get in
|215 Posts
i believe its coming from the democratic background. i have brought up the woes of trading to my dem friends and they tell me that some people should not trade. from what i can tell they just look down on general society. there is one thing you have not thought of. you know your margin is used a few days afterwards to line up all the trades.
you know clear all those trades before you can withdraw money. even though you cleared them a while back. thats margin in use. why do you think you can only trade 3 times a week if you dont have 25k for daytrading. margin is leveling off.
I repeat: The good thing about the forex is the high leverage, obviously the risk is high but the benefits too. Otherwise it makes no sense. People who lose money in forex is through lack of preparation or perhaps because this business is not for them.
We have to make a lot of money to live quiet as the poor.
I'm sure there are many many brokers (not necessary scam!) that allow us traders also without a need of a swiss accounts or anything complicated like that.
I'm guessing this rule never went into effect, or it simply doesn't affect many brokers. I've seen lots of US brokers offering higher leverage than 1.5:1
Joined Jan 2008
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Status: Lunatic Supreme
|1,840 Posts
He's talking about FINRA. FINRA used to be called the NASD. It only affects brokers that deal in securities (stocks) in the US. In order to deal stocks you have to be a registered broker-dealer, and FINRA (the NASD) is the self-regulatory organization that deals with member conduct issues. This is distinct from the SEC (and CFTC and NFA).
In the US:
SEC = Polices (mostly criminal) legal issues related to stock trading, sets some basic conduct standards for FINRA.
FBI = Investigates criminal legal issues related to stock trading.
Local police = Sometimes does the actual arrest, but otherwise they're not involved.
FINRA = A self-regulatory member organization that regulates conduct issues and sets standards for equities (stock) dealers.
CFTC = Polices legal issues related to commodities trading (mostly criminal, sometimes civil), sets some basic conduct standards for exchanges, the NFA and the industry as a whole. They also now regulate forex.
Exchanges = Where people go to trade futures. There are often exchange rules of conduct, rules are typically written to exempt exchange trading for this reason.
NFA = National futures association. A member organization similar to FINRA in concept. Now regulates most retail forex activity. Regulates conduct of members.
SIPC = Securities investor protection corp. Provides limited insurance against organizational risk for affiliated securities brokers. Insures trades and balances up to a limit. Does not insure forex trades, but might insure your balance if you're with an SIPC-member forex dealer (last I checked there's only 1). Not a regulatory organization.
FDIC = Federal deposit insurance corp. Provides limited insurance for depositors against member bank collapse. One of the biggest reasons why high leverage is as useful as it is, you can keep most of your money in an FDIC insured bank and limited your broker's organizational risk. Not a regulatory organization.
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Now how does all that play out? A company will usually create sub companies that deal in specific elements. For instance a bank will create a securities arm. That securities arm will need to be registered with the SEC and a member of FINRA. The securities arm is not FDIC insured, the bank arm is. They would be regulated by the SEC and FINRA. This means the main bank firm is not regulated by the SEC, a very useful way to bypass a messy legal framework.
They might add a futures trading arm, a company that would be a member of the NFA. That sub company would not be FDIC insured, would not be registered with FINRA and would be regulated by the CFTC and the NFA.
A forex-only dealer in the US used to not need to be registered with the NFA, and they weren't policed by anyone really. That has changed, the farm bill passed last year requires forex dealers to register with the NFA and puts them squarely under the CFTC's control. It also puts requirements on those that trade other people's money. I did a write-up of that bill, you can find it on here if you look.
FINRA regulates leverage for member firms that also trade forex. There aren't many, 1.5:1 was basically a way of telling these few firms to go join the NFA. The NFA has set leverage limits now too, so all NFA members must now abide by those. However the CFTC, the top level forex regulator, is now considering an even tighter restriction. Hence the problem.
What will happen if this goes thru?
Domestic brokers will pack up and go oversees. You'll see "Oanda UK" or "Oanda Canada." They don't even need to pack up their offices to do that, just create a foreign company (a branch office), register it with all the appropriate regulatory agencies and direct all forex trades thru that. It's nothing more than a way of shifting forex activity out of the US. Of course that might mean fewer US jobs if some brokers realize there's no point in maintaining a US office anymore, and it will certainly yield less tax revenue, but these idiots don't really care about that.
