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Help To Stop 10:1 Leverage

  • #21
  • Jan 17, 2010 7:24am Jan 17, 2010 7:24am
We need to consider the possibility the intent of the cftc may not be to push forex to 10:1. As I look through all the posts in this and other threads, I see most people take a position either for or against 10:1.

Put yourself in the position of a regulator. If you want to push a regulation through, and you make it extreme, then wouldnt the public be more accepting of a compromise position to a less extreme measure, say 25:1? Or even 50:1?

Considering the situation a year ago when the talk was about 2:1, this move towards 10:1 already seems like a softening to those of us who are naive enough to believe 10:1 is their true intent.

I think the objective is to reduce leverage this year, to whatever they can get without creating a new monster. Some traders are OK with 10:1. Some of us need 100:1. But we are all in this together. If we dont stand together and support each other on this now, we will all suffer separately at some point.

If you intend to respond to the cftc's request for comments, please make sure you think through what you want them to hear from you. Think about this from their point of view. Read the information that is currently available from the cftc and the various news outlets regarding the stated purpose of the proposed changes--"to combat fraud". Then take the time to compose a well thought out position that states 1) how this change will affect you personally--that is, will you have to increase your account sizes, will you have to lower your expectations from trading, or will you have to work at trading longer hours, etc in order to compensate for the change, and 2) suggest the cftc look at other methods to control fraud--that is, please dont penalize the people for whom the retail spot currency market was created in order to punish those who would use the forex markets in order to launder money obtained in an unlawful manner.
  • #22
  • Jan 17, 2010 8:38am Jan 17, 2010 8:38am
My concern is that a higher margin requirement will drive away thousands of market participants (liquidity). The more experienced traders will now have fewer newbie traders to trade against. This is not a good thing.
  • #23
  • Jan 17, 2010 9:36am Jan 17, 2010 9:36am
Lets assume that many traders find enough capital to adjust to the 10:1 leverage and increase their trading capital.

Does the CFTC/NFA propose to do anything regarding protecting the accounts if the broker goes down?

I don't have problems with 10:1, but if I increase my trading capital only to find it gobbled up by a broker, and no protection for me against this from NFTC/NFA, that is really scary.

Some might suggest that traders should pick "financially sound" broker. But, when regulators have time to think about leverage related regulations, why can't they do something to make sure that traders' capital is protected?
  • #24
  • Jan 17, 2010 11:20am Jan 17, 2010 11:20am
Quoting denverdude
Lets assume that many traders find enough capital to adjust to the 10:1 leverage and increase their trading capital.

Does the CFTC/NFA propose to do anything regarding protecting the accounts if the broker goes down?

I don't have problems with 10:1, but if I increase my trading capital only to find it gobbled up by a broker, and no protection for me against this from NFTC/NFA, that is really scary.
I agree...your funds in a forex account don't enjoy the same protection as funds in an equities account do.
  • #25
  • Jan 17, 2010 11:50am Jan 17, 2010 11:50am
Is the solution simply to find a legitimate overseas broker in order to continue trading at 100:1 or greater? Is anyone researching which brokers are prepared to scoop up all of this US business? I'm not sure where this may lead everyone else to, but I for damn sure am going to start researching who is legit across "the big lake".
  • #26
  • Jan 17, 2010 12:05pm Jan 17, 2010 12:05pm
In my opinion they should rather make it harder for complete newbs to get an account in the first place. Everyone can get an account no matter how little money they have. No one really checks if Currency Trading is really suited for those people.
  • #27
  • Jan 17, 2010 12:16pm Jan 17, 2010 12:16pm
Quoting TJPLD
In my opinion they should rather make it harder for complete newbs to get an account in the first place. Everyone can get an account no matter how little money they have. No one really checks if Currency Trading is really suited for those people.
You can't protect people from themselves.
  • #28
  • Jan 17, 2010 12:47pm Jan 17, 2010 12:47pm
Quoting TJPLD
In my opinion they should rather make it harder for complete newbs to get an account in the first place. Everyone can get an account no matter how little money they have. No one really checks if Currency Trading is really suited for those people.
What about freedom. They should have the right to trade or do with with their money what they please. Does it affect anyone else? No. Retail forex does not affect the forex market. Who are you to walk over to some one else and place rules on them to protect them from themselves?
  • #29
  • Jan 17, 2010 1:06pm Jan 17, 2010 1:06pm
Quoting TJPLD
In my opinion they should rather make it harder for complete newbs to get an account in the first place. Everyone can get an account no matter how little money they have. No one really checks if Currency Trading is really suited for those people.
Protect the people with no responsibility for themselves to the detriment of the little guys who actually think before they do.

Sure lower leverage won't hurt vets like yourself who already have a nice bit of capital built up... but the lower leverage sure sucks for those who are learning how to DO, but still have low capital. I've never got the big deal with leverage.. it doesn't matter what leverage is... just calculate your risk that you are willing to take and that's all that one should be worried about. Leverage only puts a limit on profit while one can keep his risk whatever he wants it to be with different pip value stops etc..

And further who cares about protecting stupid people who don't think for themselves.. its a zero sum game. If you were good at this you would only encourage it.
  • #30
  • Jan 17, 2010 1:37pm Jan 17, 2010 1:37pm
Exactly. Leverage is a tool. Its the risk: reward and money management. Just because some one is using 200:1 leverage doesnt mean that their risking more than 2 percent of their account.
  • #31
  • Jan 17, 2010 1:41pm Jan 17, 2010 1:41pm
Quoting GulfCoastPip
You can't protect people from themselves.
I'd put it that way.
"You can't protect pepole from themselves." Absolutely true.
But does that mean you have to let people run into a desaster simply because they don't know any better? When you have a drivers license no one can keep you from crashing into a tree. Does that mean drivers licences are obsolete and everyone who's old enough to turn the ignition key should be allowed to drive?
I've seen so many people blowing their account simply because they had no clue what they were doing.
If you can keep those people from opening an account in the first place there is no need to lower leverage.
  • #32
  • Jan 17, 2010 1:49pm Jan 17, 2010 1:49pm
Quoting TJPLD
I'd put it that way.
"You can't protect pepole from themselves." Absolutely true.
But does that mean you have to let people run into a desaster simply because they don't know any better? When you have a drivers license no one can keep you from crashing into a tree. Does that mean drivers licences are obsolete and everyone who's old enough to turn the ignition key should be allowed to drive?
I've seen so many people blowing their account simply because they had no clue what they were doing.
If you can keep those people from opening an account in...
So in your "perfect world" how does a noob get to open a forex account?
ok Friendo? This is madness!?!? - THIS, IS, FOREX!!!
  • #33
  • Jan 17, 2010 1:54pm Jan 17, 2010 1:54pm
Quoting TJPLD
I'd put it that way.
"You can't protect pepole from themselves." Absolutely true.

...... Does that mean drivers licences are obsolete and everyone who's old enough to turn the ignition key should be allowed to drive?....
Nice try, but there's absolutely no relation to driving and trading.

Here in the US you have to have a learners permit, then you get a driver's license. From there you have to renew your driver's license every X amount of years (depending on the state).

So YES, if you are old enough and pass the required tests and can turn the ignition, then you should be able to drive.
  • #34
  • Jan 17, 2010 1:57pm Jan 17, 2010 1:57pm
[quote=TJPLD;3373010]I'd put it that way.
"You can't protect pepole from themselves." Absolutely true.
But does that mean you have to let people run into a desaster simply because they don't know any better? When you have a drivers license no one can keep you from crashing into a tree. Does that mean drivers licences are obsolete and everyone who's old enough to turn the ignition key should be allowed to drive?
I've seen so many people blowing their account simply because they had no clue what they were doing.
If you can keep those people from opening an account in the first place there is no need to lower leverage.[/quote/]
Who are you to say who and who is not worthy. Possibly there should be mandatory education and passing of a test at a reasonable rate so the average joe still has a chance to invest. $500 for the course and test. But How will you determine who is ineligible and who is not? If you say they have more money. They will simply blow up a 20k account instead of a 2k account. And the rich stay rich and the poor poor
  • #35
  • Jan 17, 2010 1:59pm Jan 17, 2010 1:59pm
Quoting TJPLD
I'd put it that way.
"You can't protect pepole from themselves." Absolutely true.
......

I've seen so many people blowing their account simply because they had no clue what they were doing.

If you can keep those people from opening an account in the first place there is no need to lower leverage.

So using your logic...should the government have a say in how much a gambler should spend or have in pocket before they enter a casino?

Should the government say that if you gamble, you can risk no more than 10% of your gross income?
  • #36
  • Jan 17, 2010 2:00pm Jan 17, 2010 2:00pm
Quoting TJPLD
I'd put it that way.
"You can't protect pepole from themselves." Absolutely true.
But does that mean you have to let people run into a desaster simply because they don't know any better? When you have a drivers license no one can keep you from crashing into a tree. Does that mean drivers licences are obsolete and everyone who's old enough to turn the ignition key should be allowed to drive?
I've seen so many people blowing their account simply because they had no clue what they were doing.
If you can keep those people from opening an account in...
How do you separate those people out? Do you have tests that are to be taken before one is allowed to sign up for an account?

Did you have to take a test?

I guess you could make the account deposits needed alot higher before one opens an account... but that would be great wouldn't it... instead of being able to open an account for a modest amount of money... lets make the minimum a couple thousand so that newbie who thinks he is ready can really blow some cash..


No reason to entertain your example because we are talking about ADULTS. And also a very BIG REASON that your example isn't very useful is because one of the main reasons(probably the biggest reason) for a driver's test and license is to protect OTHERS from harm by ensuring a potential driver is well educated enough to operate a motor vehicle.

I'm pretty sure one cannot obtain an account without being an adult in the eyes of the state or through a guardian whatever...

Also... let's not be fooled into thinking that the world is all caramel and sunshine and that the trading game is one in which all can participate and profit from. It's a zero sum game... where if there are not uninformed traders then the informed traders would be facing off against informed traders and the game would become a whole hell of a lot less profitable.

But I find the entire argument a deficient one from the beginning because its based on the flawed premise that lower leverage will stop people from blowing their account up... It might slow the inevitable but for those who don't think for themselves and have discipline... the inevitable is not too far off.

Or how about we forget it and leave the leverage where it is and stop trying to act like we are a god to others and we are the ones who will decide what is right for them.
  • #37
  • Edited 2:22pm Jan 17, 2010 2:10pm | Edited 2:22pm
Quoting Deusomega
But I find the entire argument a deficient one from the beginning because its based on the flawed premise that lower leverage will stop people from blowing their account up... It might slow the inevitable but for those who don't think for themselves and have discipline... the inevitable is not too far off.

Or how about we forget it and leave the leverage where it is and stop trying to act like we are a god to others and we are the ones who will decide what is right for them.
That I did not say. Of course if you are unable to make a profit with 5% risk you won't be able to do it with 0.00001%. I'd simply see it as an alternative if costumer protection is what they want to achive. So what would you prefer. Taking a test and getting a sort of license ( which we have to for certain asset classes here in Germany for example and no one complains) or not beeing able to use high leverage at all?

@GulfCoastPip

I'd say that driving also require some degree of maturity which the majority teenagers don't have (yes I know there are immature aduls too but not as much). It's not just about knowing where the breaks and the gas pedal is and some basic traffic rules. I'm glad we don't let everyone drive here in Germany. I live near Kaiserslautern where we have the biggest American Community outside the United States. When you see some of them driving in the streets you'll get a heart attack.
  • #38
  • Jan 17, 2010 2:16pm Jan 17, 2010 2:16pm
Quoting TJPLD
That I did not say. Of course if you are unable to make a profit with 5% risk you won't be able to do it with 0.00001%. I'd simply see it as an alternative if costumer protection is what they want to achive. So what would you prefer. Taking a test and getting a sort of license ( which we have to for certain asset classes here in Germany for example and no one complains) or not beeing able to use high leverage at all?
Maybe not directly... but indirectly it is definitely implied because otherwise the leverage issue would be a moot point.

The test would definitely be preferred, but I don't see it as changing anything... A driver's test doesn't stop people from getting drunk and wrecking and other crap. Just like a financial license won't prevent those who lack trading discipline from blowing up their accounts. And I'd venture to guess the latter would be even less effective because the emotional connection to money.

But in the end the financial test won't be implemented to "protect" people but rather to extract more money from those said individuals by undoubtedly charging fees for aforementioned test.
  • #39
  • Jan 17, 2010 2:36pm Jan 17, 2010 2:36pm
Quoting Deusomega
Maybe not directly... but indirectly it is definitely implied because otherwise the leverage issue would be a moot point.

The test would definitely be preferred, but I don't see it as changing anything... A driver's test doesn't stop people from getting drunk and wrecking and other crap. Just like a financial license won't prevent those who lack trading discipline from blowing up their accounts. And I'd venture to guess the latter would be even less effective because the emotional connection to money.

But in the end the financial test won't...
Does anybody know if Forex Brokers decline account opening requests under certain circumstances? Or is it more like "If you can read this senctence you are already qualified to trade."
  • #40
  • Jan 17, 2010 2:41pm Jan 17, 2010 2:41pm
Quoting TJPLD
Does anybody know if Forex Brokers decline account opening requests under certain circumstances? Or is it more like "If you can read this senctence you are already qualified to trade."
Usually I've only seen financial reasons given with the exception of the age requirement ofc.

From a post from MBT Trading Future

http://www.forexfactory.com/showpost...&postcount=659

"In the best interest of our clients & the firm, MBTF / EFX policy is not to open accounts for clients who fail to meet certain criteria based on the wishes, not the request of the NFA.

1. Low Annual Income
2. Low Net Worth
3. Low Liquid Net Worth
4. Lack of trading experience.
5. Under 21 years of age

Any combination of the above mentioned is grounds for account denial which is simply what happen in this case.

Regards"

I know when I personally looked at the application of MBT they had a questionnaire on trading experience which was basically just click 1 years, or like 2+ etc... so far from investigative. But really I don't see how they could investigate too much without deterring potential customers..

And honestly I think that's as far as they should go.... should we have to explain how we trade?

I see some of you points TJPLD, but I think checking financial status is as far as a broker should go. And again on a selfish tangent would you want to trade in a market without novices and only pros?
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