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

  • #461
  • Feb 1, 2010 4:50pm Feb 1, 2010 4:50pm
It's a shame that speculators have to do so much speculating about what regulators are regulating.
  • #462
  • Feb 1, 2010 5:25pm Feb 1, 2010 5:25pm
Quoting endroute
I guess the question is do they fall under cftc jursidiction, and in looking on the nfa website and searching for citibankd and citifx etc it shows them either as exempt commodity pool operators or with no current status, so I would assume not. According to the nfa basic search page a search would turn up cftc registration as well as nfa registration.

http://www.nfa.futures.org/basicnet/...firm&firm=CITI
Yes, but that is b/c they are a bank....but Obama said that under his regulatory framework, banks cannot do propietary trading. So their retail FX operation could not continue if that goes thru if they are a bank.
  • #463
  • Edited 6:07pm Feb 1, 2010 5:52pm | Edited 6:07pm
I asked for further clarification, but I haven't heard anything back yet. I always passed them off as just another retail broker, because they are counter party to all trades, etc; however, I would like (and will hopefully get) a definite answer about this "but we are a bank!" deal.

Furthermore to the point already made about the NFA registration, "CITIGROUP GLOBAL MARKETS INC" appears in the minimum capital reporting to the CFTC. I don't know why, if they are indeed regulated as a bank? Unless they must do that for some other reason besides their retail FX offering?

http://www.cftc.gov/ucm/groups/publi...cmdata1109.pdf
Hindsight is 20/20
  • #464
  • Feb 1, 2010 6:03pm Feb 1, 2010 6:03pm
I think its both good as well as bad.

Good because, You wont be able to lose all your money in a few trades, Broker doesn't need to stop-hunt, raise spreads or worry about gamblers, since they know with 10:1 leverage it would take 1000-2000+ pips to actually double an account, It would be more safer to clients and we would not have to worry about being paid since the broker would have considerable amount of capital to process withdrawals and Brokers need not be worried about being broke.

Bad because, You can forget about getting rich quick. You would need a considerable capital to make a considerable amount of income. You wont be able to gamble or turn 100bucks to 2000bucks in a week. You would need to move out and trust an offshore based broker. (could be risky and you would not be able to complain to the cops since the broker is out of US jurisdiction)

All these problems and solutions... just for a change of leverage.
Where there is a will there is a way...
  • #465
  • Feb 1, 2010 6:03pm Feb 1, 2010 6:03pm
Quoting wwwin
Yes, but that is b/c they are a bank....but Obama said that under his regulatory framework, banks cannot do propietary trading. So their retail FX operation could not continue if that goes thru if they are a bank.
Not sure a bank operating a retail forex shop = prop trading but who knows what ossama and his band of merry progressives will try to do.
  • #466
  • Feb 1, 2010 7:17pm Feb 1, 2010 7:17pm
Quoting endroute
Not sure a bank operating a retail forex shop = prop trading but who knows what ossama and his band of merry progressives will try to do.
Yeah, you might be right, b/c they do it "to serve?" a customer, it might not be purely proprietary trading
  • #467
  • Feb 1, 2010 8:40pm Feb 1, 2010 8:40pm
Quoting endroute
Not sure a bank operating a retail forex shop = prop trading but who knows what ossama and his band of merry progressives will try to do.
Ive been reading they're probably not gonna be able to pass the vote on banning prop trading. Too many in congress opposed to it. Trout has an article on it
  • #468
  • Feb 1, 2010 8:43pm Feb 1, 2010 8:43pm
http://www.zerohedge.com/article/so-...p-ban-proposal

and they say we cant make a difference with 10:1 leverage, see what the bankers are doin to the president. But of course lol they have people on their payroll
  • #469
  • Feb 2, 2010 10:34am Feb 2, 2010 10:34am
The FXDC has issued another statement on fighting fraud in retail forex and the CFTC proposal's impact. Here it is:

Fighting Fraud in Retail Forex



Over the past decade the Commodity Futures Trading Commission (CFTC) has found itself engaged in a seemingly endless battle with con-men, ponzi schemers and hapless fund managers operating in the retail forex arena. The difficulty for the CFTC lay in the fact that 90% of the people engaged in this criminal activity were not registered or licensed with any regulatory body and in many cases were simply common criminals who never actually engaged in any trading but simply misappropriated customer funds for their own use. The CFTC’s answer to fighting this problem has been to propose dramatic new regulations that would require anyone soliciting customers to trade retail forex get a license and be registered with the CFTC. This new licensing regime would go a long way towards ending the problem of forex fraud in the
United States.

However, all of this potential progress will be wiped away due to another CFTC proposed rule which would require customers post a 10% margin deposit in place of the current 1% margin rule recently adopted by the primary regulator of retail forex over the past ten years, the National Futures Association (NFA). Here is why the 10% margin rule will make forex fraud worse than it has ever been:

 

  1. The adoption of the 10% margin rule will make it impossible for U.S. based forex dealers to compete with competitors from the United Kingdom. UK dealers are regulated by the FSA, which has no leverage restrictions whatsoever. The U.S. retail forex industry simply won’t be able to compete and will be decimated, leaving no legitimate forex dealers left for customers to trade with. In this environment fraud will flourish.
  2. With no widely recognized brand names left in the United States it will become harder for the trading public to screen out the con-men. Last year the major forex dealers of this industry spent over $100 million building up their brand names precisely to separate themselves from the rabble. When a customer clicks on the website of a brand name in the retail forex industry they can quickly find links directing them to the CFTC or NFA do conduct a background check. But when the brand names disappear it will then fall upon forex traders themselves to sort through the rabble and this will be much more difficult and leave traders much more vulnerable since fraudsters are highly unlikely to give customers an option to do background checks with regulators.
  3. Adding to this vulnerability is a worrying trend of traders who are developing an “antiregulatory” attitude when it comes to forex regulation. Traders are going from valuing the consumer protection offered by regulators to being hostile towards regulation since they are starting to see regulation as something that smothers consumer choice in the name of nanny statism. This attitude will harden should the 10% margin rule pass thus turning the CFTC into the bad guys in the minds of many traders. Once again, in this environment fraud will flourish.
  4. Furthermore, a lot forex fraud involves boiler rooms that peddle so called “foreign currency options,” which require customers to make a deposit in order to purchase an over-priced premium. By increasing margin requirements these con-men can make even bolder requests of their customers and charge even more ridiculous amounts for premiums before they run off with a client’s funds.
  5. Perhaps most troubling of all is that unregulated dealers from around the world will be the biggest beneficiaries of the 10% margin rule. These unregulated forex dealers don’t have to worry about capital requirements, risk management models, marketing ethics, dealing practices or even returning a customer’s funds. These dealers will be out of the reach of the CFTC and they will thrive.
  6. At the end of the day, fraud will become impossible to police. Background checks are impossible to do for unregulated offshore forex dealers. Some of these con-men simply setup a website, put up a phony address in a foreign locale and claim to be a large and mainstream forex dealer when in reality there is just some lone hustler, sipping tea in a cramped apartment running the whole show. In the aftermath of the shutdown of the U.S. retail forex industry U.S. traders will be bombarded by offshore forex boiler rooms and many will be taken advantage of unnecessarily. There is no cop on the beat in the world of the unregulated, overseas retail forex dealer. Therefore, it makes no sense that CFTC would encourage people to open accounts at these offshore dealers instead of trading at a perfectly compliant and regulated domestic forex dealer.


A Healthy, Regulated Industry with a Cop on the Beat



The key to solving forex fraud resides within the CFTC’s own proposed rules (absent the 10% margin rule). Over the last several years the NFA has aggressively tightened up its rules regulating retail forex by raising the minimum capital requirement to $20 million (which doesn’t include additional capital requirements on net positions), conducting more aggressive audits of firms (NFA registered forex dealers must submit monthly reports to CFTC and weekly reports to NFA), imposing tough marketing standards, and raising the bar in general for admission to the Association. As a result, the days of the small time forex dealer with just a few thousand dollars in capital opening a forex firm have long since ended. These tougher regulations have cleared out the worst elements in the dealer community, leaving only the unregulated forex referring broker community to be cleaned up next. These rules will do exactly that.

But by requiring customers post 10% margin and wiping out all forex dealers (who are not engaged in fraud and who want to see an industry where the only people employed in it are licensed and on the level) the trading public will be left with no one but the ponzi schemers to do business with inside the United States. The fact is the overwhelming majority of customers who trade in the retail forex industry are not victims of fraud. They are investors who enjoy trading currency online. They should not be punished for the sins of criminals. And they won’t be in a well-regulated domestic forex industry that works with the CFTC to report on those solicitors who are not going by the new letter of the law. But first there has to be a healthy industry to regulate in order to finally put an end to fraud. If the 10% margin rule is withdrawn
that’s precisely what we will have.

http://blogs.fxstreet.com/francesc/f...tail-forex.pdf
  • #470
  • Edited 11:44am Feb 2, 2010 11:34am | Edited 11:44am
Quoting Jason Rogers
The FXDC has issued another statement on fighting fraud in retail forex and the CFTC proposal's impact. Here it is:

Well the FXDC is either naive or a kissing arse pushover...the purpose of the 10 to 1 proposed rule is not to weed out fraud...the purpose is to help to bring liquidity to forex futures, which the CFTC favors, and to destroy spot fx trading, which the CFTC disfavors. So if they are going to be pushovers and kiss arses, it may not be lowered to 10 to 1 now, but the CFTC will continue with other rules to eventually accomplish what they want. This coalition is a joke. Since this coalition of patsies is not going to challenge anything...I am wondering if somebody else will, as they did in the Zelener case...http://www.futuresindustry.org/fi-ma...home.asp?a=961
  • #471
  • Feb 2, 2010 12:31pm Feb 2, 2010 12:31pm
Quoting wwwin
Well the FXDC is either naive or a kissing arse pushover...the purpose of the 10 to 1 proposed rule is not to weed out fraud...[/url]
This was the point of the statement. The proposal to reduce leverage will have the opposite effect by pushing traders overseas to potentially unregulated brokers.
  • #472
  • Feb 2, 2010 12:34pm Feb 2, 2010 12:34pm
Quoting wwwin
Well the FXDC is either naive or a kissing arse pushover...the purpose of the 10 to 1 proposed rule is not to weed out fraud...the purpose is to help to bring liquidity to forex futures, which the CFTC favors, and to destroy spot fx trading, which the CFTC disfavors. So if they are going to be pushovers and kiss arses, it may not be lowered to 10 to 1 now, but the CFTC will continue with other rules to eventually accomplish what they want. This coalition is a joke. Since this coalition of patsies is not going to challenge anything...I am wondering...
I doubt the shift of US customers from spot to futures would have any real noticeable impact on the crappy liquidity seen in fx futures
  • #473
  • Feb 2, 2010 12:44pm Feb 2, 2010 12:44pm
Quoting endroute
I doubt the shift of US customers from spot to futures would have any real noticeable impact on the crappy liquidity seen in fx futures
Well in order to make that statement you need to know the volume of trades of US customers trading spot. So, do you have that figure?
  • #474
  • Feb 2, 2010 12:59pm Feb 2, 2010 12:59pm
Quoting wwwin
Well in order to make that statement you need to know the volume of trades of US customers trading spot. So, do you have that figure?
My math is as follows US based spot fx represents roughly 660 billion (17%) out of a roughly 4 trillion $ market as a whole of which spot fx is a relatively small fraction, it has been estimated that spot fx is around 2-4% of the total volume. So even at a rosey 5% you are looking at maybe an additional 33 billion across a couple of dozen currency pairs, still equates to not much.
  • #475
  • Feb 2, 2010 1:07pm Feb 2, 2010 1:07pm
Quoting Jason Rogers
This was the point of the statement. The proposal to reduce leverage will have the opposite effect by pushing traders overseas to potentially unregulated brokers.
OK, Jason thanks...I have a question, FXCM, except FXCM Micro, is supposed to be a no dealing desk broker, just passing thru the quotes and just adding the spread...therefore it is not a counterparty...and the Farm Bill...states something similar to, "one is the counterparty and the other side is retail"...so if FXCM spins off a US separate entity just as a pass thru non-dealing desk no counterparty broker, why should they have to register and where would CFTC's jurisdiction come from?
  • #476
  • Edited 1:30pm Feb 2, 2010 1:29pm | Edited 1:30pm
Quoting wwwin
Well the FXDC is either naive or a kissing arse pushover...the purpose of the 10 to 1 proposed rule is not to weed out fraud...the purpose is to help to bring liquidity to forex futures, which the CFTC favors, and to destroy spot fx trading, which the CFTC disfavors. So if they are going to be pushovers and kiss arses, it may not be lowered to 10 to 1 now, but the CFTC will continue with other rules to eventually accomplish what they want. This coalition is a joke. Since this coalition of patsies is not going to challenge anything...I am wondering...
Thank you!
It's what I have been saying all along. They demonstrated their timidity last summer with the NFA. They are such babies that they don't even identify themselves on their FXDC website!

It's good to know that they are polite, good boys and that they know how to politely do tricks for scraps.

I am certain that they will be perfect gentlemen when they finally shut their doors and lay off their employees.

They know that if this goes through , it spells the end for them but they would rather fall on their swords then to mount a real protest with some guts and go for complete rebellion. Court! Fight! Start policing fx with a multi-representative panel that adjudicates complaints fairly without an agenda. And stop paying their member dues! RESIGN FROM NFA/CFTC, you gutless wonders!!!
Scarlett
  • #477
  • Feb 2, 2010 1:34pm Feb 2, 2010 1:34pm
Quoting Scarlett
Thank you!
It's what I have been saying all along. They demonstrated their timidity last summer with the NFA. They are such babies that they don't even identify themselves on their FXDC website!

It's good to know that they are polite, good boys and that they know how to politely do tricks for scraps.

I am certain that they will be perfect gentlemen when they finally shut their doors and lay off their employees.

They know that if this goes through , it spells the end for them but they would rather fall on their swords then to mount a real...
Amen!!!!
  • #478
  • Feb 2, 2010 2:05pm Feb 2, 2010 2:05pm
Lots of great thoughtful posts in this thread. I particularly like the succinct comments buy Leche Mancha and GulfCoastPip. Not surprising since I am a strict Constitutionalists. But lets think about this from a slightly different perspective.
What is the motivation behind the politicians that have proposed the new rules. Are they trying to protect you from loosing all your money? Are they trying to protect the country ( there only specified duty) ? Are they trying to make money for themselves? Or are they trying to find a way to assure they get re-elected ?. There are just so many reasons for doing anything.
Bottom line is this. Will this new regulation be good for YOU. If yes I seriously think you should consider doing something else because you lack will power and discipline two of the key ingredients of a trader. Just get yourself a 9 to 5er and all the government handouts you can.
If the new rule would be bad for you then it is your duty to get in touch with everybody you can and do your best to stop it.
Remember " You can vote your way into communism but you can't vote your way out"
  • #479
  • Edited 9:56pm Feb 2, 2010 9:23pm | Edited 9:56pm
Quoting endroute
My math is as follows US based spot fx represents roughly 660 billion (17%) out of a roughly 4 trillion $ market as a whole of which spot fx is a relatively small fraction, it has been estimated that spot fx is around 2-4% of the total volume. So even at a rosey 5% you are looking at maybe an additional 33 billion across a couple of dozen currency pairs, still equates to not much.
OK, let's say your math is right, as I don't want to look up the figures. Then what is the purpose of the rule???...Think about this..

Just about 2 years ago it used to be that CME only had standard contracts of 125,000 euros as in EURUSD...then they introduced E-mini which is half or 62,500....and now they introduced the E-micro, which is 1/10 of the standard or 12,500, the most liquid pair is EURUSD and today this most liquid pair just traded 81 contracts as of now, and I don't see any trades going thru watching for a while...now what business are these e-micros after??
http://www.cmegroup.com/trading/fx/e...icro-euro.html

An E-micro is woth about $17,450 U.S at today's rate....so the dollar value of 81 contracts traded today is about $I.41 million US. I would say that an additional 33 Billion U.S. a day would make a big difference, don't you think, even if only a % of it goes the futures route.

This is a well thought out plan to put the coalition of patsies (GFT, Oanda, IBFX, Gain Capital, FXCM, FX Solutions, FXDD, PFG Best, CMS Forex)out of business in the U.S.
  • #480
  • Feb 2, 2010 9:50pm Feb 2, 2010 9:50pm
Quoting endroute
Not sure a bank operating a retail forex shop = prop trading but who knows what ossama and his band of merry progressives will try to do.
You're right, Citi operating their retail forex shop is not proprietary trading. Simply being counterparty to a trade is not in of itself proprietary trading. Volcker was talking today and he specifically stated that he was not looking to stop market makers from facilitating client orders.
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