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Help To Stop 10:1 Leverage

  • #1
  • First Post: Jan 14, 2010 9:36am Jan 14, 2010 9:36am
In referance to the article http://www.cftc.gov/newsroom/general...pr5772-10.html

They want comments on the proposed regulations, send them using this link

http://www.cftc.gov/lawandregulation...mmentform.html

If enough people send them messages telling them how stupid 10:1 leverage is they will listen.
  • #2
  • Jan 14, 2010 11:10am Jan 14, 2010 11:10am
Submitting a comment right now...leverage is needed in the forex market
  • #3
  • Jan 14, 2010 11:15am Jan 14, 2010 11:15am
Well, indeed. Using leverage beyond 10:1 is rather stupid and the number one killer for newbies.
  • #4
  • Jan 14, 2010 11:22am Jan 14, 2010 11:22am
I have to agree. Wouldn't change anything for me.
Just did the math.
  • #5
  • Jan 14, 2010 11:34am Jan 14, 2010 11:34am
submitted mine
  • #6
  • Edited 12:55pm Jan 14, 2010 12:30pm | Edited 12:55pm
10:1 leverage doesn't mean you can actually trade that much at a time. If the margin is now 10% ...

... then assuming you are trading EUR/USD, in a situation where 1.5 USD = 1 Euro, and the broker will begin to close your position once the equity in your account drops below 50% of the margin ...

... then the maximum amount you can trade at once is 4x (NOT 10x) the money in your account ... and you would only have a cushion of 250 pips before a margin call.


I did the math:

Under 10% margin (10:1 leverage) and trading EUR/USD:

Trade 2x your account = cushion of 3500 pips or 2750 pips
Trade 4x your account = cushion of 1000 pips or 250 pips
Trade 5x your account = cushion of 500 pips or *0 pips

On that last one, you would receive a margin call immediately if you tried to trade 5x your account size, because the equity left in your account would already be lower than 50% of the margin ... 250 pips lower.

I don't think many people are understanding that under 10:1 leverage, you wouldn't be able to trade even close to 10x your account size.


Even if the broker does NOT touch your position until the entire remaining equity in your account has been exhausted, then you would still only be able to trade a maximum of 6x your account size, which gives you 167 pips before a margin call. This, of course, pertains to EUR/USD only and the numbers would be different for another currency pair.
  • #7
  • Jan 14, 2010 1:08pm Jan 14, 2010 1:08pm
http://www.forexfactory.com/showthread.php?t=215827
  • #8
  • Jan 14, 2010 1:09pm Jan 14, 2010 1:09pm
Quoting kibescorp
10:1 leverage doesn't mean you can actually trade that much at a time. If the margin is now 10% ...

... then assuming you are trading EUR/USD, in a situation where 1.5 USD = 1 Euro, and the broker will begin to close your position once the equity in your account drops below 50% of the margin ...

... then the maximum amount you can trade at once is 4x (NOT 10x) the money in your account ... and you would only have a cushion of 250 pips before a margin call.


I did the math:

Under 10% margin (10:1 leverage) and trading EUR/USD:...
U can trade 10 times your account :
For example your account is 1000 $ = 690 euro
U can buy 10 K USD/YEN or 6900 euro/USD which is 10 times your account
  • #9
  • Jan 14, 2010 2:09pm Jan 14, 2010 2:09pm
Actually yes, I forgot to clarify something. When I say 'x' times your account size, I mean the lot size compared to your account equity.

In other words, if you have $1,000 in your account, I call trading 10,000 units of EUR/USD trading 10x your account, regardless of what the exchange is at the time.

The reason for that is because the amount you will gain per pip is not affected by what the monetary value of your trade is, only how many lots it is. What is affected, however, by the exchange rate is how much of your money is locked away as margin.

So yeah, you could theoretically trade 6900 Euros with a $1000 account, but that isn't 10x your account size in terms of units, because 6900 Euros at the current exchange rate is not 10,000 units.

How many units is what determines how much you gain or lose per pip. That is why trading EUR/USD when the price is 1.4000 is no different from when the price is 1.5000 in terms of how much you will gain with the same amount movement. The only difference is how much of your EQUITY is left over due to a higher margin requirement when the price is 1.5000.
  • #10
  • Jan 14, 2010 2:22pm Jan 14, 2010 2:22pm
Quoting kibescorp
Actually yes, I forgot to clarify something. When I say 'x' times your account size, I mean the lot size compared to your account equity.

In other words, if you have $1,000 in your account, I call trading 10,000 units of EUR/USD trading 10x your account, regardless of what the exchange is at the time.

The reason for that is because the amount you will gain per pip is not affected by what the monetary value of your trade is, only how many lots it is. What is affected, however, by the exchange rate is how much of your money...
I disagree with u but i dont want to argue , if u trade cable it moves more than usd/cad and usd/yen in general , 1% of 1.6 is 160 pip but 1% of USD/Cad is 100 pip , anyway if u buy 10000 NOK/SEK with a 1000$ account this is not considered 10 times your account ...
  • #11
  • Jan 14, 2010 2:25pm Jan 14, 2010 2:25pm
In that case with $1,000 in your account you can't even trade a mini-10k lot as that is the margin requirement ..... Now you need money to trade with.....


Quoting tar
U can trade 10 times your account :
For example your account is 1000 $ = 690 euro
U can buy 10 K USD/YEN or 6900 euro/USD which is 10 times your account
  • #12
  • Jan 14, 2010 2:28pm Jan 14, 2010 2:28pm
Quoting mofuniverse
In that case with $1,000 in your account you can't even trade a mini-10k lot as that is the margin requirement ..... Now you need money to trade with.....
yeah the margin for 1 min Euro is 1000 euro , but the margin for 1 mini NZD is 740 $ so it depends on which pair ...
  • #13
  • Jan 14, 2010 4:10pm Jan 14, 2010 4:10pm
Regardless of whether you make use of higher than 10:1 leverage, I urge everyone to still oppose this. This is the CFTC overstepping its boundaries, and meddling in things it should not be meddling with. As somebody else pointed out, their job is to prevent fraud, not tell traders how much risk they can use. This is beyond outrageous.

If anybody cant think of anything to write, suggesting that a new rule requiring brokers to better explain leverage to new clients is an alternative idea. It would be easy to implement, and everyone would be happy.
  • #14
  • Jan 14, 2010 9:58pm Jan 14, 2010 9:58pm
It would be much more helpful if we could have a constructive dialogue here. We have only 60 days in which to make our voices heard. Those of us who depend on forex for a living need to get our heads around this.

Does anyone know, that is have definite knowledge, why the cftc has taken this action? No "theoretical" responses please.

Does anyone who depends on forex trading for their primary source of income consider a non-US brokerage as a truly viable alternative?

Several of the brokers claim to be aggressively challenging the cftc on this. If you're a broker, are you willing to communicate the basics of your position to those of us who are traders? And have an open dialogue with traders about the issue in general?

Where is the NFA on this? They lowered the maximum to 100:1 only last month. Brokers--what does NFA tell you about their position opposite the cftc on this?
  • #15
  • Jan 15, 2010 9:06am Jan 15, 2010 9:06am
Quoting pipnu2me
It would be much more helpful if we could have a constructive dialogue here. We have only 60 days in which to make our voices heard. Those of us who depend on forex for a living need to get our heads around this.

Does anyone know, that is have definite knowledge, why the cftc has taken this action? No "theoretical" responses please.

Does anyone who depends on forex trading for their primary source of income consider a non-US brokerage as a truly viable alternative?

Several of the brokers claim to be aggressively challenging the cftc on...
I'm already with FXCM UK for hedging, stops, limits and OCOs, best move I ever made. The platform is the same I just have a lot more controll over how my money enters and leaves the market.
  • #16
  • Jan 15, 2010 9:45am Jan 15, 2010 9:45am
Quoting Miami_Trader
I'm already with FXCM UK for hedging, stops, limits and OCOs, best move I ever made. The platform is the same I just have a lot more controll over how my money enters and leaves the market.
Enjoy it while it lasts.
After all, they already DID lower their leverage from 1:200 to 1:100 AFTER I transfered my account there. SO THERE IS A REAL RISK THEY WOULD DO IT AGAIN if the FSA jumps into bed with the CFTC in the future.
  • #17
  • Edited 10:53am Jan 15, 2010 10:13am | Edited 10:53am
Quoting pqt
Enjoy it while it lasts.
After all, they already DID lower their leverage from 1:200 to 1:100 AFTER I transfered my account there. SO THERE IS A REAL RISK THEY WOULD DO IT AGAIN if the FSA jumps into bed with the CFTC in the future.
Yeah, it's pretty damn funny that so many people are relaxed about this because they're currently with a non-US broker and assumes that this won't affect them in any way. Wonder what the reaction will be when that balloon pops.

Personally, I wouldn't want to switch to an overseas broker unless it was absolutely necessary ... and needless to say, effective. It's not easy to find a real, decent ECN that you end up being comfortable with ... I'd like to stick with the two I've got.

That said, I'm hoping that this rule would not go into effect until the summer. Even using conservative calculations, my account would definitely have grown to at least $50K by that time, at which point I would naturally have started to use even less leverage anyway. 10% margin is harsh, but as long as there's still half a year's time before the rule is actually enforced, it wouldn't affect me at all.
  • #18
  • Jan 15, 2010 12:19pm Jan 15, 2010 12:19pm
10:1 = artificial stop loss = more opportunity for brokers to take your money. There's virtually no flexibility at this level of leverage unless you have a gigantic account balance. If there is any tightening of leverage, my thought is that 50:1 might give enough breathing room to be reasonable.

The problem is actually more about honesty. The pretext for trading is made dishonest by brokers pitching the idea that retail forex is something that can be mastered simply by using their indicator-based training programs. If they were honest, they'd explain that indicators lag and are unreliable at best. They'd lay out some perspective about a wide range of existing strategies and the probability component of trading and that trading is risky, and becomes exponentially more risky the higher the applied leverage. They could do much more to prepare new traders for the realities of trading, the realities of risk, and of ways to manage risk. They could invite the perspective and experience of live traders and they could explain that different people react differently when trading and that emotions frequently get the best of someone who is unprepared. Of course, if they were so bluntly honest they might scare off potential customers. Well, except the gamblers, who'd probably go for it anyway. And why should they be kept from trading if they want to? They know the risk because the broker would have made it clear to them, right?

Hopefully a invitation for feedback from traders will become an integral part of CFTC decision making because proposing a limit of 10:1 seems to have come from an uninformed assessment of retail trading. But I guess that begins with a lack of any real and honest understanding among all parties. I get the impression that the CFTC is simply assuming--maybe reasonably--that retail traders don't have a clue about this sort of thing. Maybe the CFTC is trying to protect the poor hapless trader. Well, traders wouldn't be poor and hapless if they had better information going in.

I think it's up to the brokers to start this process of clarification. After all, they're the ones who put up the ads that are seen by millions of potential newbies--ads like the one at the left of this page.
  • #19
  • Jan 15, 2010 12:37pm Jan 15, 2010 12:37pm
Quoting natanas
10:1 = artificial stop loss = more opportunity for brokers to take your money. There's virtually no flexibility at this level of leverage unless you have a gigantic account balance. If there is any tightening of leverage, my thought is that 50:1 might give enough breathing room to be reasonable.
That's exactly what it is. So a reduction in leverage is in NO WAY beneficial to the trader ... unless you're someone who enjoys wiring additional funds to your trade account from your bank account every time your trade goes south.

Plain and simple, a reduction in leverage simply means you have to keep MORE of your money IN your trading account if you want to keep trading the same number of lots.
  • #20
  • Jan 15, 2010 1:24pm Jan 15, 2010 1:24pm
Go to this thread: Trade Using VSA (Volume Spread Analysis)
and in post #4897 can get e-mail to send to CFTC... if you want ...
The Market pays you to be disciplined
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