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Could 10:1 be the new leverage in US Forex?

  • #121
  • Jan 20, 2010 8:57pm Jan 20, 2010 8:57pm
Quoting AstonDan
I'm going to paraphrase (badly) something Warren Buffet said on a BBC documentary late last year:

If you're intelligent, you don't need leverage; if you're not, you have no business using it anyway.
Comments like this are not only useless, but take stupidity to new levels. Almost all retail traders NEED leverage for any sort of meaningful account growth within reasonable amounts of time. Billionaire fund managers are another story.
  • #122
  • Jan 20, 2010 9:05pm Jan 20, 2010 9:05pm
Quoting AstonDan
I'm going to paraphrase (badly) something Warren Buffet said on a BBC documentary late last year:

If you're intelligent, you don't need leverage; if you're not, you have no business using it anyway.
he was talking about stocks where leverage is 2:1 you intelligent person!
  • #123
  • Jan 21, 2010 12:11am Jan 21, 2010 12:11am
Quoting AstonDan
I'm going to paraphrase (badly) something Warren Buffet said on a BBC documentary late last year:

If you're intelligent, you don't need leverage; if you're not, you have no business using it anyway.
Warren Buffet endorsed Obama too.

But on a side note, the whole leverage is bad thing is over used. Leverage or no leverage, its the skill of the trader, its stupid to believe that leverage makes you stupid and going without leverage is smart and going to make you a smart trader.
  • #124
  • Jan 21, 2010 12:31am Jan 21, 2010 12:31am
I personally like the ability to have high leverage in my trading account because it allows me to keep less trading capital in there and still use the position sizing that I would with a larger trading account.

Remember, your trading capital is not necessarily what's in your trading account, but what you have set aside, whether it is in your trading account or not. In reality, what is the difference between me having $90,000 in a bank account and $10,000 in a trading account OR having all $100,000 in my trading account? The difference is that I'm risking say "20%" of my trading account on any given trade, but actually I'm only risking "2%" of my trading capital, because I actually have another $90,000 set aside in a nice safe bank account instead of my trading account. In order to do this, I have to use higher leverage in my account than I normally would if all my trading capital was in my trading account.

So, with this proposed increased margin requirement, I will be forced to put more capital in my trading account, which I don't particularly care for - one way to look at it is that it increases my risk and gives me no reward in return. Crappy deal.

Some of the huge financials use more than 30:1 leverage, even with their billions. Banks are allowed to lend out 10x more than they have on deposit, even with their billions (and even more than 10x in some places). But a guy with a $500 forex account isn't allowed to use more than 10:1 leverage in his account? Even if he actually has more than that on hand? Seems a bit ridiculous.

Why don't they teach people how to calculate and manage leverage instead of just straight-up forbidding it? What if brokers were forced to give all new account holders a test of basic trading knowledge before letting them trade instead of just telling traders what they can and can't do?
  • #125
  • Jan 21, 2010 12:33am Jan 21, 2010 12:33am
Dear lovers of forex market,

CFTC is at it once again. They are looking to shut down Forex for retail traders by any means first it was FIFO Rule now this 2nd attempt is limiting leverage size to 10:1 all proposed in name of rescuing retailers (B.S!) It's a COVER UP in other words its declaration of war!

Anyhow we need action, we have 60 days from Jan 13,2010 to let CFTC know that we are AGAINST limiting leverage. CFTC is seeking Public comments from traders like yourself and me about this silly proposal.

My suggestion is, everyone of you FX loving retail traders out there, caste your vote before its too late.

Please INFORM every forex lover out there NOW! by any methods forums/chats/email whatever.. every response counts...! we are at WAR, we have 60 days.. i'd really hate to see end of FX.

Follow the instructions for submitting comments. E-mail: [email protected]. Include “Regulation of Retail Forex” in the subject line of the message.
Fax: (202) 418-5521.
Mail: Send to David Stawick, Secretary, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, DC 20581.
Please make your opinion known to the cftc, if you’re displeased with this proposal. If traders fail to have their feelings known, then the cftc’s decision, is much easier to make.


--- for ease, there is a template created by DC of Forexlive.com (please do add/remove stuff so it looks more credible & meaningful to them (doesnt have to be lengthy)


=====================
Dear CFTC Committee,

 I am a retail trader and I am strongly opposed to the 10:1 leverage proposal by the CFTC. This regulation/requirement will drive many of the “smaller guys” out of the markets entirely or to offshore (ie unregulated) brokers.

The liquidity provided by retail traders increase the efficiency of the markets. Removing them, or unfairly pricing them out of the markets will result in increased price volatility overall and decrease the efficiency of the markets which is bad for everyone.
Please reconsider this proposal.

Thank you
Sign Your Name Here
=========================

Regards,
GoodBoy
  • #126
  • Jan 21, 2010 12:52am Jan 21, 2010 12:52am
Amazing how the smaller traders will be knocked out again ,first was stocks with daytrade rule & 25K in acct to trade ,now 10/1 with higher margin requirements of 10k for 1 standard lot,say goodbye to forex trade shows in USA! Maybe us govt is pissed because so many went to trading forex after stock market crashed !What a sad day it will be if this is passed,OFF_SHORE acct here we come !OBAMANOMICS will ruin this country ,big govt need to step down ,if not many more problems on way !
  • #127
  • Jan 21, 2010 1:17am Jan 21, 2010 1:17am
Oops, there is already a much more details/discussed thread for this subject to be found at http://www.forexfactory.com/news.php?do=news&id=215919

lets hope for the best everyone, save your capital for rainy days ahead.
  • #128
  • Jan 21, 2010 2:32am Jan 21, 2010 2:32am
If this rule passed, wouldnt a massive amount of traders move over seas? for example FXCM UK? I myself, jumped on the UK wagon about 6 months ago.
"The market doesn't beat them, they beat themselves" - J. Livermore
  • #129
  • Jan 21, 2010 2:35am Jan 21, 2010 2:35am
Quoting madfox71
Amazing how the smaller traders will be knocked out again ,first was stocks with daytrade rule & 25K in acct to trade ,now 10/1 with higher margin requirements of 10k for 1 standard lot,say goodbye to forex trade shows in USA! Maybe us govt is pissed because so many went to trading forex after stock market crashed !What a sad day it will be if this is passed,OFF_SHORE acct here we come !OBAMANOMICS will ruin this country ,big govt need to step down ,if not many more problems on way !
Back when i was trading in the stock market, the Pattern Day trading rule was so annoying. these rules are pretty absurd. This Gov wants you to stay slaved at a 7am-8pm job and work for the rich. (Rich stay Rich - Middle Class->Poor->Poorer)
"The market doesn't beat them, they beat themselves" - J. Livermore
  • #130
  • Jan 21, 2010 3:07am Jan 21, 2010 3:07am
Quoting madfox71
Amazing how the smaller traders will be knocked out again ,first was stocks with daytrade rule & 25K in acct to trade ,now 10/1 with higher margin requirements of 10k for 1 standard lot,say goodbye to forex trade shows in USA! Maybe us govt is pissed because so many went to trading forex after stock market crashed !What a sad day it will be if this is passed,OFF_SHORE acct here we come !OBAMANOMICS will ruin this country ,big govt need to step down ,if not many more problems on way !
Actually, this proposal is following the 2008 Farm Bill, enacted before Obama took office. Whether it's abandoning the gold standard, fed system of central banking, the too-big-to-fail hoax, cap 'n trade, etc., the mischief of gov't, especially the progressives, interfering with the "free market" has been going on forever. And then they blame market failures on capitalism, when today's America is all about progressive corporatism. Before Obama, Bush was the biggest spender of all time. Obama is just the spill-over of decades of bad policy making and gov't interference, a punishment for abandoning/violating the constitution.
  • #131
  • Jan 21, 2010 11:16am Jan 21, 2010 11:16am
CFTC Screwing the little guy
For any of you not aware of this here is the letter I received from one of my brokers today:

"Dear Valued Customer,

As many of you are aware, the U.S. Commodity Futures Trading Commission (CFTC) announced on January 13, 2010 that it is seeking public comment on proposed regulations concerning retail Forex trading.

As part of the proposed regulations, it is stated: "leverage in retail forex customer accounts would be subject to a 10-to-1 limitation," which means 10:1 leverage would be the maximum amount allowed for all Forex traders in the U.S.

An example of how the proposed regulatory restrictions would affect a major currency pair appears below:
Maximum Leverage under Current Regulations Maximum Leverage under Proposed CFTC Changes
USD/CHF USD/CHF
100:1 leverage (one percent) 10:1 leverage (10 percent)
1 lot (100,000) 1 lot (100,000)
Margin requirement: $1,000 Margin requirement: $10,000

We stand behind the belief that you should be given the freedom and right to choose the amount of leverage that is appropriate for your individual desired risk, and that this basic principle of 'choice' is in jeopardy by the proposed CFTC regulations.

If you feel strongly about the proposal, we encourage you to help determine the outcome of these proposed regulations. You can help make an impact by sending comments directly to the CFTC at: [email protected].

Please include 'Regulation of Retail Forex' in the subject line of your message and the identification number RIN 3038-AC61 in the body of the message.

You can also submit your comments by any of the following methods (include above ID number):

* Fax: (202) 418-5521
* Mail: David Stawick, Secretary Commodity
Futures Trading Commision 1155 21st Street, N.W.,
Washington, DC 20581
* Courier: Use the same as mail above.

In the upcoming days, Interbank FX and the rest of the U.S. Forex Dealer Coalition will be releasing a more formal opinion about the proposed changes. Please feel free to read further details about the regulation on the CFTC website by clicking here. In the interim, we encourage you to voice your opinions to the CFTC and your local U.S. representative.

As always, we want the best for our traders. We hope you’ll join forces with us to prohibit the proposed leverage requirements.

The Interbank FX Team"


This would be huge if it goes through. They already changed the leverage to be a maximum of 100 to 1 here in the US which is what I believe drove my favorite broker out (FXPro) of the US. It they put this in it could be bad for all of us that trade for beer money after our regular jobs. Basically will be going from making a few dollars to a few pennies. I highly suggest all the traders whose accounts are not over $10,000 write an e-mail saying this is an attack on the retail trader which would basically set things up so only the semi-wealthy or better could make money trading forex.
  • #132
  • Jan 21, 2010 11:36am Jan 21, 2010 11:36am
http://online.wsj.com/article/SB1000...LEFTTopStories

Guys, it is game over in the US. Don't fight it, go somewhere else.

Retail FX is just collateral damage, a side effect, banks such as Citi, JP Morgan and BofA will take the big hit.
  • #133
  • Jan 21, 2010 12:21pm Jan 21, 2010 12:21pm
Quoting NYWallSt
If this rule passed, wouldnt a massive amount of traders move over seas? for example FXCM UK? I myself, jumped on the UK wagon about 6 months ago.
This is precisely what the Forex Dealers Coalition believes may happen if the proposal goes through. It's estimated that up to 90% of US based accounts will go overseas in response. Here's the full list of arguments from the Forex Dealers Coalition: http://www.forexfactory.com/showthre...37#post3379837
  • #134
  • Jan 21, 2010 12:37pm Jan 21, 2010 12:37pm
I have recently had a change of heart about this issue.

In my personal trading, I use at most 5:1 leverage. My typical leverage is 2:1. However, as I have been examining my journey to profitability, I realize that I would have blown fewer accounts and lost much less money had I used a smaller leverage. Also, it would have required me to study more before jumping straight into my first micro account.

I believe individuals should be allowed to have higher leverage, but they should be required to sign additional waivers and be subject to a simple examination maybe 3 questions long which instructs the trader how destructive leverage can be if not used properly.
  • #135
  • Jan 21, 2010 12:43pm Jan 21, 2010 12:43pm
Quoting Code4Capital
Warren Buffet endorsed Obama too.

But on a side note, the whole leverage is bad thing is over used. Leverage or no leverage, its the skill of the trader, its stupid to believe that leverage makes you stupid and going without leverage is smart and going to make you a smart trader.
LOL. Not a fan i take it. I suppose he'll have even fewer after today's announcments.

Both you and GulfCoastPip make perfectly valid points which i wholeheartedly agree with. Unfortunately (for US based traders), i suspect the decision has already been made and i doubt all the letters, emails and protests in the world are going to change things when such sweeping changes are being planned for the banking system.

As for the other respondents whose passions these changes seem to have stirred, good luck in your endeavours.

(As an aside, Buffet was not talking about 'stocks', he was talking about 'markets', and it is widely believed, though seldom discussed, that he also deals in currencies and derivitaves).

Good luck
Dan
  • #136
  • Jan 21, 2010 1:25pm Jan 21, 2010 1:25pm
Quoting Moody
I have recently had a change of heart about this issue.

In my personal trading, I use at most 5:1 leverage....
Perhaps next time you buy a bottle of booze, you should first sign a waiver that you understand the risks of excessive drinking, that you might go home and beat up your wife or puke on your neighbor's cat.

Did you know that some light bulbs come with installation instructions nowadays in our idiocracy? Yep, big brother keeps saying that we're stupid and eventually we become just that -- STUPID. Mistakes and learning from them are bad; intellectual laziness and helplessness is okay, as long as you're a good consumer. Sorry, but I respectfully disagree with just about everything you said.
  • #137
  • Jan 21, 2010 1:42pm Jan 21, 2010 1:42pm
Dan,
Buffet is an investor not a trader. There's a huge difference between these two groups. Thanks.

Quoting AstonDan
LOL. Not a fan i take it. I suppose he'll have even fewer after today's announcments.

Both you and GulfCoastPip make perfectly valid points which i wholeheartedly agree with. Unfortunately (for US based traders), i suspect the decision has already been made and i doubt all the letters, emails and protests in the world are going to change things when such sweeping changes are being planned for the banking system.

As for the other respondents whose passions these changes seem to have stirred, good luck in your endeavours.

(As an aside, Buffet...
  • #138
  • Jan 21, 2010 3:09pm Jan 21, 2010 3:09pm
Quoting r_t
http://online.wsj.com/article/SB1000...LEFTTopStories

Guys, it is game over in the US. Don't fight it, go somewhere else.

Retail FX is just collateral damage, a side effect, banks such as Citi, JP Morgan and BofA will take the big hit.

Im really really really starting to hate this guy.... and thats alot since I dont think ive ever said that about another president... not bush or clinton
  • #139
  • Jan 21, 2010 3:21pm Jan 21, 2010 3:21pm
I think people are making a big mistake in confusing initial margin requirement with leverage.

To clarify:

Let's say you wanted to open a notional $100,000 position... So at 100:1 you would have to set aside $1000...the market goes against you $1 you're at $999 and you get a margin call....

For the same position at 10:1, you would have to set aside $10,000....remember you CANNOT touch this money for trades that go against you....in this case if the market goes against you $1 you're at $9,999 and you get a margin call...

ABSOLUTELY SAME RISK!!!!

Practically there is no difference in terms of pure risk management whatsoever...higher margin alone does not impact your risk in any way, shape, or form...all it does is for you to put up more money to be able to open a position!

even if you go at 1:1 i.e. no margin...still you have to take care of your risk management regardless...

Remember we are solely talking about MARGIN Requirement here and NOT risk management!!!

Higher Initial Margin Requirements Is Not The Same Thing As Lower Overall "Effective Leverage" and Thus Not Lower Risk!!!
Hear the music before the song is over ...
  • #140
  • Jan 21, 2010 3:42pm Jan 21, 2010 3:42pm
Quoting AstonDan
LOL. Not a fan i take it. I suppose he'll have even fewer after today's announcments.

Both you and GulfCoastPip make perfectly valid points which i wholeheartedly agree with. Unfortunately (for US based traders), i suspect the decision has already been made and i doubt all the letters, emails and protests in the world are going to change things when such sweeping changes are being planned for the banking system.

As for the other respondents whose passions these changes seem to have stirred, good luck in your endeavours.

(As an aside, Buffet...
For those with short memories, he also lost a little bundle in forex in 2005 (ONLY over a billion though )
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