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NFA has it's wish

  • #1
  • First Post: Oct 3, 2009 6:29am Oct 3, 2009 6:29am
February 23, 2009
National Futures Association: Forex Security Deposits - Proposed Amendments to NFA Financial Requirements Section 12 and Interpretive Notice Regarding Forex Transactions (Effective November 30, 2009)
Looks like all US brokers will only allow 100:1 leverage after Nov. 30th.
  • #2
  • Oct 3, 2009 7:30am Oct 3, 2009 7:30am
I think we are gonna see volatile markets , back to the days when currency futures ,used to bounce up and down .
it seems we are gonna miss the trending markets like those trends during 2007-2009!!
the one way trend with shallow retracements is gonna be rare, back to the days when markets will trend only 30% of the time!!
Enter Signature
  • #3
  • Edited 8:32am Oct 3, 2009 8:20am | Edited 8:32am
Quoting CHFJunkie
I think we are gonna see volatile markets , back to the days when currency futures ,used to bounce up and down .
it seems we are gonna miss the trending markets like those trends during 2007-2009!!
the one way trend with shallow retracements is gonna be rare, back to the days when markets will trend only 30% of the time!!
Can you explain?limited leverage = more volatility?. Thank you.
  • #4
  • Oct 3, 2009 11:26am Oct 3, 2009 11:26am
Quoting Toothman
February 23, 2009
National Futures Association: Forex Security Deposits - Proposed Amendments to NFA Financial Requirements Section 12 and Interpretive Notice Regarding Forex Transactions (Effective November 30, 2009)
Looks like all US brokers will only allow 100:1 leverage after Nov. 30th.
There is no reason for anyone to trade more than 100:1. It's suicide.
  • #5
  • Oct 3, 2009 11:46am Oct 3, 2009 11:46am
Quoting IndyTrader
There is no reason for anyone to trade more than 100:1. It's suicide.

That is not true. Leverage has nothing to do with suicide, the truth is you actually risk less money with higher leverage. For example to trade 1000 dollars at 400:1 you must trade 4000 dollars at 100:1. The person with lower leverage has to put out more money at risk than the person who uses higher leverage. Dont understand why people dont understand that. If you have a 1 lot at 1.00 a pip and it goes against you 20 bucks you are 20 bucks in the hole whether your leverage is 1:1, 50:1, or 500:1. Leverage and margin are two totally different concepts. Most people who argue against leverage are really arguing against margin and that is a different animal. Once you understand that higher leverage actually is a benefit to a trader not suicide.
  • #6
  • Oct 3, 2009 11:48am Oct 3, 2009 11:48am
Quoting CHFJunkie
I think we are gonna see volatile markets , back to the days when currency futures ,used to bounce up and down .
it seems we are gonna miss the trending markets like those trends during 2007-2009!!
the one way trend with shallow retracements is gonna be rare, back to the days when markets will trend only 30% of the time!!

Oh how I would love that. Bouncing markets are so much easier to trade than trending markets. I would welcome that one, send it on.
  • #7
  • Oct 3, 2009 3:20pm Oct 3, 2009 3:20pm
Quoting nanningbob
That is not true. Leverage has nothing to do with suicide, the truth is you actually risk less money with higher leverage. For example to trade 1000 dollars at 400:1 you must trade 4000 dollars at 100:1. The person with lower leverage has to put out more money at risk than the person who uses higher leverage. Dont understand why people dont understand that. If you have a 1 lot at 1.00 a pip and it goes against you 20 bucks you are 20 bucks in the hole whether your leverage is 1:1, 50:1, or 500:1. Leverage and margin are two totally different concepts....

Well said, I agree with you. leverage is the main tool for getting rich :-)
  • #8
  • Oct 3, 2009 4:23pm Oct 3, 2009 4:23pm
Quoting nanningbob
That is not true. Leverage has nothing to do with suicide, the truth is you actually risk less money with higher leverage. For example to trade 1000 dollars at 400:1 you must trade 4000 dollars at 100:1. The person with lower leverage has to put out more money at risk than the person who uses higher leverage. Dont understand why people dont understand that. If you have a 1 lot at 1.00 a pip and it goes against you 20 bucks you are 20 bucks in the hole whether your leverage is 1:1, 50:1, or 500:1. Leverage and margin are two totally different concepts....
Thats one way to look at it. However what gets some people in trouble is this: say you have just $1000 to deposit initially. At a leverage of 100:1 you can only trade 100,000 units which can make you win or loose at $10 per pip. However if your trading that $1000 deposit at 400:1 leverage you can trade 400,000 units which can make you win or loose at $40 per pip. If your on the loosing side of either the 100:1 or 400:1 trades your $1,000 will be lost either way, but using 400:1 leverage at $40 per pip your loss will occur 4 times as fast as the $10 per pip trade does. Thats where higher leverage can get ya into trouble.
  • #9
  • Oct 3, 2009 6:12pm Oct 3, 2009 6:12pm
Quoting nanningbob
That is not true. Leverage has nothing to do with suicide, the truth is you actually risk less money with higher leverage. For example to trade 1000 dollars at 400:1 you must trade 4000 dollars at 100:1. The person with lower leverage has to put out more money at risk than the person who uses higher leverage. Dont understand why people dont understand that. If you have a 1 lot at 1.00 a pip and it goes against you 20 bucks you are 20 bucks in the hole whether your leverage is 1:1, 50:1, or 500:1. Leverage and margin are two totally different concepts....
You do not risk less money with higher leverage. You may use less margin to open a position with higher leverage but your actual risk remains the same. If you are trading 1 standard lot at $10 per pip with a 50 pip stoploss, you are risking $500 no matter what your leverage is.

You may get into trouble using high leverage because less margin is required, allowing you to increase your position size to a point where a small move against you can wipe out your account rather quickly. Higher leverage allows a reckless trader to trade beyond his means.

If trader A has 400:1 leverage and trader B has 100:1 and they both trade the same position size and stoploss size, they will both be risking the same thing. Consequently 400:1 leverage and 100:1 can be traded the same way. No rule says you have to exercise your whole 400:1 leverage. Trouble comes when you do. Why do you think brokers offer it? Because they know it will be abused.
  • #10
  • Oct 3, 2009 6:32pm Oct 3, 2009 6:32pm
Quoting LEXngton
Thats one way to look at it....
Yes what you say is true but that is a margin issue not leverage. You can not over margin your account no matter what amount of leverage you use or trading style. If you understand how to use leverage it is a great benefit to a trader, if you dont, yes you suffer loss but the loss to the inexperienced trader is less than if he has a lower leverage. In other words, to the dumb trader who doesnt understand leverage his account balance becomes his ultimate stop loss. If a guy uses 100:1 and now deposits 4000 dollars will still lose his 1000 dollars and probably more with the same trades he uses at 400:1 and a 1000 dollars. The difference is his limit becomes 1000 max at 400:1 but he can lose all of his 4000 at 100:1. What I am basically saying is this, you cannot stop people from losing money by changing leverage but you can make their loss less by giving them higher leverage. They will then risk less money in the account.

The guys running NFA are trying to force traders to trade a certain style of trading. Those of us who do not want to trade their trading style are going to be forced to trade overseas. For example my most profitable trading style was hedging. Just because they dont understand how you can make money hedging doesnt mean it cant be done. If you dont believe me on the hedging issue, go to Trading the AUD/NZD successfully and you will see a hedging trading style that worked very very well. I hate the NFA, they are trying to force all traders to use a certain trading style to protect their little pool of traders not protect me from bad brokers who slip trades. If they really want to protect traders they should demand to see the MT4 back room software that prevents prices from hitting their TP by increasing the spread and spike up to hit the SL before retracing. Now that would benefit traders. Not this stupid first in first out crap. If I have 3 trades on and I want to close the 3rd trade first because it is profitable and ride the other two longer that should be my choice. I often trade that way. That 3rd trade may bounce up and down between S/R several times before price reverses into the direction I think it is going to go. That is not protecting traders that is forcing people to trade a certain trading style so the market can be controlled by the big boys.
  • #11
  • Oct 3, 2009 8:30pm Oct 3, 2009 8:30pm
I hate the NFA, they are trying to force all traders to use a certain trading style to protect their little pool of traders not protect me from bad brokers who slip trades. If they really want to protect traders they should demand to see the MT4 back room software that prevents prices from hitting their TP by increasing the spread and spike up to hit the SL before retracing. Now that would benefit traders. Not this stupid first in first out crap.


Give'um hell Bob. I love it. For those still stuck on the "higher leverage = higher risk" band wagon do yourself a favor and read each of Nanningbob's threads start to finish and you"ll have your eyes opened.
  • #12
  • Oct 3, 2009 9:45pm Oct 3, 2009 9:45pm
It's been coming a long time now.

They'll start at 100:1, then they'll tighten it down by degrees.
  • #13
  • Oct 4, 2009 1:11am Oct 4, 2009 1:11am
Quoting Rabid
It's been coming a long time now.

They'll start at 100:1, then they'll tighten it down by degrees.
Actually if the USA wants to over regulate an industry, I guess there isnt much I can do but what is up with foreign companies refusing to take USA traders. Do the USA regulators have so much power that other reputable companies wont take us? What is up with that? Why is it we cant trade anywhere we want?? There seems to more going on here than just some simple regulation rules.
  • #14
  • Oct 4, 2009 3:19am Oct 4, 2009 3:19am
These are people that don't trust that you're smart enough to do anything, and don't think it's worth the risk to let you try.

If you're worried about it then you'll need to setup a company off-shore and trade thru that. I've already got my plan ready and waiting.
  • #15
  • Oct 4, 2009 3:47am Oct 4, 2009 3:47am
Quoting nanningbob
That is not true. Leverage has nothing to do with suicide, the truth is you actually risk less money with higher leverage. For example to trade 1000 dollars at 400:1 you must trade 4000 dollars at 100:1. The person with lower leverage has to put out more money at risk than the person who uses higher leverage. Dont understand why people dont understand that. If you have a 1 lot at 1.00 a pip and it goes against you 20 bucks you are 20 bucks in the hole whether your leverage is 1:1, 50:1, or 500:1. Leverage and margin are two totally different concepts....
I agree Nanningbob, good point.
Higher leverage is an advantage to the trader. Not knowing where the market goes, one will loose money with lower or higher leverage but knowing where the market goes, higher leverage is an advantage. Forex has an advantage and potential to make money just by higher leverage. It's very obvious that someones in power from NFA don't like traders to be successful.

Regards,

Constin
  • #16
  • Oct 4, 2009 4:49am Oct 4, 2009 4:49am
Quote

After reviewing the comments, NFA believes that the amendments are the
best way to address NFA’s customer protection concerns with certain FDMs’ use of

leverage.

Quote

Furthermore, the FDM that uses higher leverage to
encourage close-in stop orders actually exemplifies one of the problems NFA is trying to address — that higher leverage can deplete the account balance and result in forced liquidation much faster than customers may realize.


It seems that the NFA are trying to "protect us" from ourself because of a small lot of traders losing money by "over-leveraging" their acct and complainint to the NFA about their brokers. The NFA isn't taking into account the vast majority of traders that move the market, they are looking at the "new traders" with no market trading experience; looking to protect them from themselves and in the process lumping all others in the same boat.
  • #17
  • Oct 4, 2009 5:07am Oct 4, 2009 5:07am
Quoting nanningbob
Once you understand that higher leverage actually is a benefit to a trader not suicide.
Finally, someone who knows what he is talking about on this issue of leverage compared to all the bullsh*t that is posted by others on this subject.

I need high leverage and it works for my trading style. If others don't need it, don't use it. Who is forcing anybody to?

I say, Go Bob !!!!!!!!!!!!!!!!!!!
  • #18
  • Oct 4, 2009 5:36am Oct 4, 2009 5:36am
The one thing that is never brought out in these debates on leverage is this. Of course new inexperienced traders will lose money. I did and so has everyone else. The difference is, what will be the cost of your education. The hardest thing to learn in Forex or any trading for that matter is letting go of a bad trade and closing it out. You just dont want to do it as a young trader. Higher leverage lets new traders trade with smaller sums and learn the fine art of blowing up an account. We have all done it. Now that I have learned, the hard way of course, not to do that, in other words learn to trade another day. I have become a much more successful trader. Losing trades dont blow my mind or emotions anymore. They simply are part of the business. The difference however is the amount I have lost. My first broker had 100:1 and I needed 500-1000 dollars to trade, that is a lot of money to lose learning something. With 400:1 I could put 2-300 in. Not that I like losing money but I learned how to keep an account intact. Realistically if they force brokers to go to 100:1 I will survive because I have become an experienced trader however, in the future, those that want to learn this business are going to have a raise in tuition. It has just become more expensive to learn this business. That is the value of leverage and NFA is going to raise the tuition on these folks. So in the name of protecting the investor they are going to kill the little guy who probably will not have enough money now to learn this business over the long run.
  • #19
  • Oct 4, 2009 7:04am Oct 4, 2009 7:04am
Quoting nanningbob
The one thing that is never brought out in these debates on leverage is this. Of course new inexperienced traders will lose money. I did and so has everyone else. The difference is, what will be the cost of your education. The hardest thing to learn in Forex or any trading for that matter is letting go of a bad trade and closing it out. You just dont want to do it as a young trader. Higher leverage lets new traders trade with smaller sums and learn the fine art of blowing up an account. We have all done it. Now that I have learned, the hard way...
Your minimum Account Size depends more on your smallest position size than on leverage. -> Oanda
  • #20
  • Oct 4, 2009 4:40pm Oct 4, 2009 4:40pm
Quoting CHFJunkie
I think we are gonna see volatile markets , back to the days when currency futures ,used to bounce up and down .
it seems we are gonna miss the trending markets like those trends during 2007-2009!!
the one way trend with shallow retracements is gonna be rare, back to the days when markets will trend only 30% of the time!!
Actually, I think if anything, the opposite will be true. I believe the market will become less volatile, which is probably why the NFA wants to do this in the first place.

Think about it this way. If you have a $10,000 account, you're going to be holding trades for much longer and making less trades over the same period of time if you only purchase a $10,000 lot per trade, rather than 10 lots of $100,000 (10x your account) per trade.

Limiting the maximum leverage brokers can offer will in theory (and generally speaking) keep people from risking too much money per trade. This wouldn't cause them to make more trades, it would force them to hold trades longer.

Think about it. Which traders hold trades the longest and use the lowest amount of actual leverage? Position/long-term traders. And which hold trades the shortest and use the highest amount of actual leverage? Scalpers.

What this will do essentially is make it extremely difficult for scalpers to keep trading as they do, and force more people to hold trades longer. This will make the slopes more vertical, not less. More trending markets, less sideways.

As a swing trader, I would be very thankful for that.
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