NFA has it's wish

You over estimate the influence of us, the tiny fart traders, on the market!

The forex market is moved by some big dogs, not by some hundred thousands wannabe and hobby traders

http://pceumaxgt1.mt4live.com/

If you read my first post on my 60x90 EA, the market is not moved by traders except in short bursts during news stories. The Forex was made for businesses, banks, and governments to exchange money. Traders are just riding its coat tails. The Forex doesnt trade Trillions of dollars every day from trader transactions but businesses, banks, etc. exchanging funds from business, bank, and govt. transactions. Anyways if you want a detailed explanation Dark Star did a great article on the matter.

1. Dark Star did a great thread on what the Forex really is, you can find it here: http://www.forexfactory.com/showthread.php?t=7484

Exactly, "If others don't need it, don't use it."

The NFA is doing everyone a favor... 500:1 leverage works for your strategy? What kind of strategy is that? Makes no sense.

Let me get my boots. NFA is doing us a favor? You need to read up on the proper use of leverage in the Nanningbob threads.

The only people the NFA is doing a favor for are the lazy get-rich-quick thinking morons who come to forex looking for a lottery ticket.

Let's make it perfectly clear...... INCREASED LEVERAGE DOES NOT EQUAL INCREASED RISK! 2% risk at 400:1 IS EQUAL TO 2% at 1:1! What is so hard to understand about that??

If a broker is STUPID enough to offer me 400:1 or 500:1 let them do it. I can make a whole lot more money in a 10k account at 500:1 than a 10k account at 100:1 or less and never risk more than 2% per trade in either account. Why? Because I have spent the time required to understand leverage and how powerful a tool it really is for those who respect it. It's like the broker giving me free money to trade with and who in their right mind wouldn't want that? Ok, so it isn't totally free. With higher leverage you get worse swap rates. But since I haven't paid a swap in the last 2+ years that really doesn't matter to me.

It's the people who do not understand the difference between leverage and risk that come in here preaching about the sins of leverage.

I only have two accounts left in the U.S. anyway, this new ruling just seals the deal to close those accounts and move them overseas with my other ones. Who does this new ruling help? It certainly isn't the brokers in the U.S. who won't be able to compete with overseas brokers anymore. NFA, the only thing they stand for is Not For America.

AMEN!!! If you understand leverage and don't over margin your account you can trade with less risk and less money. Well put.

What you've put in capital letters above I have put in bold and underlined it. Hopefully everyone that is confused about the issue gets to read it.

But my guess is that there is so much spin out there and so many people don't understand leverage and how to use it that they will still find it hard to understand.

Depends on whether you mean effective leverage or actual account leverage. It also depends on whether you're funding your account fully or just up to what you trade.

Actual account leverage doesn't matter at all, IBFX gives me some ungodly amount of leverage that I never use. Oanda gives me like 50:1, but I've never needed anywhere near that amount per trade.

But there are times where low leverage levels do matter, ie: margin. Every trade has a margin requirement, meet it or die. A lower leverage means you have to tie up more of your money in margin. That doesn't matter when you're talking about single trades and a defined risk per trade, but when you've got multiple trade with many trades running with an SL trailed well beyond their entry point then suddenly this takes on a new meaning.

Example:
I have a partial long lot running in EURUSD that I got in on early September. I've long since taken partial profits, am now letting the remainder run and run as long as it wants. Previously I had my SL to 1.437, now it's at 1.449 (trailing the recent low). Price isn't likely to gap 200 pips, and if it did... well it's still a tiny leverage. That trade isn't likely to go negative without getting my SL filled very often often, maybe 1 time in 20 years, and I'm willing to take that risk. Still, there's a margin associated with that trade isn't there? Which means in theory I'm limited in the number of these kind of trades I can take. In practicality it hardly matters, I'm unlikely to have 10 runners like this by the time the trend ends on my timeframe, but it's still an issue to consider.

The effective leverage of that trade is small. I had about 1.8% at risk when the trade started, less than 1% after I took some profit, and the effective risk is very close to (altho not exactly) 0% now.

Then there's account stacking. I frequently take money out of the account and put it into another. Why? Because the account I'm xferring to is a cash account held with an SIPC-insured broker that I use for longer term stock trades. That particular holding account has no leverage, so it's fully insured. If my forex broker went belly up right this minute and took all my money... well that'd suck, but I wouldn't be dead in the water. That's a risk, and I've taken steps to insure against it.

If I fully funded my account I could make these trades with a tiny tiny leverage, but as it is now I like using higher leverages and seperate accounts as a kind of insurance policy. Less leverage available means more of my money would be put to risk.

Now 100:1 is very high leverage. I have never needed that, even when stacking trades and figuring up margins. But my concern with this move isn't the 100:1, it's that someday they might tighten it further. There's a nanny-state trend here, trying to protect people against themselves because they don't believe we're smart enough to know better. I don't like that trend, it leads somewhere bad. Short freedom and long communism correlates to short prosperity and long poverty. I don't like that trade.

That's why we need to get involved and stay involved in the regulatory process. Burying our head in the sands just makes it easy for others to win, and there's no such thing as "deregulation" ... it's only a matter of who gets to write the rules. The NFA has no choice but to listen to those that pay the bulk of it's membership fees, that's the way it's structured (sadly). Which means we have to be very vocal, organized and involved in order to counter the larger interests. Until then this trend will continue.

There is absolutely nothing wrong with high leverage.

High leverage lets us put small amounts of money without having to liquidate other investments but still make large positions.

For example, what's the difference between a 500K 1:1 leveraged position with a tight stop loss and a 1K 500:1 leveraged position with no stop loss?

The only difference is that I only have to put 1K into the account for the high leverage position, where I have to put 500K into the low leverage account.

So I lose the 1K in the high leveraged position... BFD. At least I didn't have to liquidate 500K of other investment in order to do so.

That is because you dont know how to use leaverage in a strategy. Anti leaverage people dont understand that using 1000 dollars at 400:1 is the same as using 4000 dollars at 100:1. You use less of your money and more of the brokers money on a trade at 400:1 than you do at 100:1. It has nothing to do with a trading strategy it is how you are using the money. What ever strategy you use, you can use the exact same startegy at 400:1 as 100:1 or 50:1. The only difference is the amount of YOUR MONEY the broker controls. If people really understood this rather than trading strategies more people would do this. The less money my broker has the better off and safer my money is.

Erm.. no. Leverage just affects the margin cost. Of course, you can trade 4 lots instead of 1 with the higher leverage, but if your money management scheme says trade 1 lot not 4, why would you do that?

A $100k lot at 1:400 is the same per pip as the same lot at 1:100. It just needs less available margin to open it.

interesting...
how do u see this happening?
what is your 'timeline forecast'?
Thanks

i liked the way u said that.

just as there are people who love & hate using stop losses, there are people who thrive/excel in high &/or low leverage, trending &/or ranging markets.

No idea, and I'm sure it'd be wrong anyway. But this particular move has been anticipated for over a year, and in the works for several more. As currency prices effect commodity prices more and more (bad dollar policy, sadly) we should expect politicians to use "price stability" as an excuse for even more draconian legislation. It means yet another reason to funnel money into their special interests, which is basically all regulators (of all sorts) are good for these days. That trend is long-term, it will probably continue longer than we have left to live.

If trading is your business you should probably have a plan that involves getting that business as far from the US as possible. The legislative climate here is horrible for innovation and just getting worse. I've already gotten the paperwork for incorporating overseas and talked with an attorney about the matter. Some day, probably within the next decade, I'll be moving most of my structure to more a friendly regulatory climate. I'm already researching possible destinations. I can still live here even if my company doesn't.

As for leverage... there's a difference between account and effective leverage. So the confusion is understandable. Nobody here is talking about 400:1 effective trade leverage, which would be suicide. It will be interesting to see how that distinction is clarified in law. The problem with leverage confusion is stop losses and the chances of not having them filled. That is a risk not easily quantified.

There are people who say what happens in the US eventually happens elsewhere, sooner or later.
what do u say to that?

Thanks for your insight, as always.

Nah. Besides, what other choice is there? Give up?

I'd say the people who say that are nuts. The rest of us are not having a problem hedging and that FIFO nonsense.

i suggest you stop talking and email these idiots your opinion about this whole mess they're creating

[email protected],
[email protected]
[email protected]

BTW if someone has a dual citizenship (US+other) and the UK broker doesn't allow the US citizens ... then will they take such a customer ? Or they check where you live ... will they take a US credit card for funding ?

m78