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Thoughts on 50:1 Leverage

  • #41
  • Sep 2, 2010 10:09am Sep 2, 2010 10:09am
Quoting Maxsmart


Ultimately, because I support options that put personal responsibility back into the financial market,

Sincerely,

Michael C. Burgess, M.D.
Member of Congress
I really have no problem whatsoever with the new leverage rules. But when everything is regulated for me, I no longer even have the right to make my own stupid decisions (and I've always been pretty good at that).

And that's a good point pipmutt.... if they really just wanted to "protect" everyone why not offer some deposit protection. Anyway... I'm done with this subject.

Regards
  • #42
  • Sep 2, 2010 10:20am Sep 2, 2010 10:20am
Quoting phs
To day-trade one euro futures contract {6e} @ $125,000 the margin is $500.
lol with what broker? That's impossible
  • #43
  • Sep 2, 2010 10:49am Sep 2, 2010 10:49am
amp futures and mirus futures to name just two have $500 margins. The minimum acct. deposit is $2000.
  • #44
  • Sep 2, 2010 11:28am Sep 2, 2010 11:28am
http://www.marketwatch.com/story/mrs...ket-2010-09-02

In the comments...

"All speculative currency trading should be absolutely prohibited and FOREX should be shut down and put out of business. We need to return to a fixed rate currency exchange system like we had with Bretton Woods as the entire floating rate exchange system has just become another gambling casino with no legitimate purpose or merit whatsoever and it has caused major instability and huge imbalances in proper valuation rather than working like any sort of efficient market. It is rife with speculators and the current trading amount of $4 trillion absolutely proves just how absurd this entire floating rate speculative currency exchange system has become."

....a rebuttal

"You are in essence advocating an OPEC solution to currencies. The Bretton Woods policy failed for the simple reason that it depended on the good faith of the American government to only allow so many dollars to exist in relationship to the gold in its reserves. We promised to provide one ounce of gold for every foreign nation that wished to exchange $35 of American currency. But during the Johnson administration, as America printed money to cover the costs of both a Great Society Program and the Vietnam War, France under De Gaulle called the American bluff at the currency version of Casino Royale, and shortly ater President Nixon closed the gold window and ended the failed charade of Bretton Woods.

As a patriot you probably realize that during the American Revolution, when our national currency the Contnental failed, Americans tended to trade in the Spanish currency. They chose to value the Spanish pieces of eight made of silver over the American continental that became a symbol for anything utterly worthless. Cheerleaders to this day praise the Spanish pieces of eight that made their way throughout America's wilderness regions. The Spanish coin could be divided into pieces of eight known as bits. That is how we got the cheer, "two bits, four bits, six bits, a dollar.

So successful was the wilderness' experiment in using foreign coin for domestic trade, that one of the first acts of congress under the new constituion system was to approve the coinage of a silver dollar containing exactly the same amount of silver as the Spanish dollar contained. In essence, free market choice acted upon by American individuals in the American economy led to the adoption of an official currency like that of the Spanish.

While currency exchanges may be messy and subject to instability and greed and manipulation, Bretton Woods means governmnent control without any freedom from those governed by their governments' choice of currency debasement. At least with floating currency exchange markets in place, the individual can call the bluff of his own government's system of money. That was not true of Bretton Woods. While the French government could demand gold for their dollars, the American individual was not permitted to own gold in America. Gold was American government property except for jewelry and limited amounts that could not be used to support a free market currency competitve with the rule of the Almighty dollar.

Advocating a return to Bretton Woods is advocating government control worldwide without the potential for individuals to call the bluff of their own nation's choice of providing debased money to repay debts they could never pay honestly. The current problem is one of widespread rejection of sound money principles by every nation in the world. Governments prefer a currency which they can manipulate. Most governments choose to run an inflationary economy. They borrow for government programs and inflate the money supply so they may repay their debt with debased currency. This is the fraud perpetrated on every common investor. We have currency debasement everywhere, and we have two ways to combat it. One way is to invest in the soundest foreign currencies available. The other way is to purchase gold and silver and then to establish a system of getting rid of debased currency as quickly in possible in favor of the old faithful metal coins that are not so nearly subject to being debased.

Please rethink your position. Better a casino than a curency fixed in value by the very thugs who continually debase your currency. Follow the course of the original patriots whose widespread use of Spanish silver led to a later American government's adoption of a silver dollar that provided a stable currency for more than a century in our young republic."
"If The Fool persists in his Folly he will become wise." - William Blake
  • #45
  • Sep 2, 2010 11:39am Sep 2, 2010 11:39am
http://www.thirdworldtraveler.com/Ch...gn_RSChom.html

"The Bretton Woods system more or less functioned for about 25 years. That's what many economists call the "golden age" of modern capitalism (modern state capitalism, more accurately). That was a period, roughly up until about 1970, a period of historically unprecedented growth of the economy, of trade, of productivity, of capital investment, extension of welfare state measures, a golden age. That was reversed in the early '70s. The Bretton Woods system was dismantled, with liberalization of financial markets and floating exchange rates.

The period since has often been described as a "leaden age." There was a huge explosion of very short-term, speculative capital, completely overwhelming the productive economy. There was marked deterioration in just about every respect-considerably slower economic growth, slower growth of productivity, of capital investment, much higher interest rates (which slow down growth), greater market volatility, and financial crises. All of these things have very severe human effects, even in the rich countries: stagnating or declining wages, much longer working hours, particularly striking in the United States, cutback of services. Just to give you one example in today's great economy that everyone's talking about, the median income (half above, half below) for families has gotten back now to what it was in 1989, which is below what it was in the 1970s. It also has been a period of the dismantling of social democratic measures that had considerably improved human welfare. And in general, the newly imposed international order provided much greater veto power for the "virtual parliament" of private capital of investors leading to significant decline of democracy and sovereign rights, and a significant deterioration in social health."
"If The Fool persists in his Folly he will become wise." - William Blake
  • #46
  • Sep 2, 2010 11:46am Sep 2, 2010 11:46am
So....is speculation "necessary"? Is it evil? A necessary evil? There can be no doubt that periods of rampant speculative excess have been overwhelmingly destructive, contributing to wars and widespread misery, etc, and this has been going on a long time. See

http://www.amazon.co.uk/Extraordinar...3445784&sr=8-1

But what is the alternative?
"If The Fool persists in his Folly he will become wise." - William Blake
  • #47
  • Sep 2, 2010 12:21pm Sep 2, 2010 12:21pm
Quoting TradeRunner

And that's a good point pipmutt.... if they really just wanted to "protect" everyone why not offer some deposit protection.
That's what I can't understand, it seems like such an obvious issue yet they continue to avoid it. Strange.

Perhaps there's some fundamental reason why currencies can't be insured but what that could be escapes me. If no insurance is available maybe the industry as a whole should be obliged to set up an 'emergency' fund for if/when one of their members goes into liquidation. Other industries have similar setups, why not this one?
  • #48
  • Sep 2, 2010 12:24pm Sep 2, 2010 12:24pm
Quoting deuce
It wasn't that long ago that you needed 25-50K to open a currency trading account. Now it's the Wild West. 50:1 is adequate for someone with small capital to trade with. It is also great for someone with major capital to allocate a small percentage with a broker to gamble with.

At 10:1, while still ok for someone with limited funds, I would do all my currency trading in my futures account. The main reason being safety of funds.
See, that is what they are doing. Trying to make people move away from Spot Forex and into Futures so they can monitor and control it better. If safey of the fund is the issue, why don't the government make Spot Forex traders enjoy safety of funds too?
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  • #49
  • Sep 2, 2010 1:04pm Sep 2, 2010 1:04pm
Quoting Forexia
If safey of the fund is the issue, why don't the government make Spot Forex traders enjoy safety of funds too?
Why does the government owe any protection to private financial institutions? If the government can not tell these institutions how to run their business (i.e., regulate them) then why should the government be obligated to cover their asses when they fail? Let the marketplace be the arbitor of what constitutes a "safe" investment and what does not.

The new regs require the forex brokers to periodically publish data on what the winning/losing percentage breakdown is for their traders. We have all been repeating the old adage that 95% of traders fail and lose money - now the brokers will have to acknowledge that with real data. Add to that the new Risk Disclosure statement, which basically is an admission that the spot forex industry is a casino model predicated on the necessity of traders' continual losses, and people may make more informed decisions about what kind of risks they are willing to take.

Hey, I'm for free markets - if a broker wants to offer 1000:1 margin, fine. If you trade with him and make some sick profits, great. Maybe he pays you, maybe not. If he doesn't have the reserves to cover his losses (i.e., your winnings) then he goes tits up and you lose your money. Maybe you have recourse in the courts, if you still have any $ to hire an attorney. If this happens enough times maybe the crooks get weeded out of the industry, maybe the industry goes belly up. History will not blink.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #50
  • Sep 2, 2010 1:07pm Sep 2, 2010 1:07pm
I am a US Citizen but I have an account with FXCM UK

Does this 50:1 leverage rule for Majors and
20:1 leverage for minors apply to FXCM UK accounts also ?
  • #51
  • Sep 2, 2010 2:21pm Sep 2, 2010 2:21pm
Quoting rjngh2005
I am a US Citizen but I have an account with FXCM UK

Does this 50:1 leverage rule for Majors and
20:1 leverage for minors apply to FXCM UK accounts also ?
Apparently no. The new regulation is not going to affect it, from what I have read. Go to the thread "FXCM Discussion" in "Brokers Discussion". FXCM has posted an official statement about that.
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  • #52
  • Sep 2, 2010 2:31pm Sep 2, 2010 2:31pm
Quoting The Fool
Why does the government owe any protection to private financial institutions? If the government can not tell these institutions how to run their business (i.e., regulate them) then why should the government be obligated to cover their asses when they fail? Let the marketplace be the arbitor of what constitutes a "safe" investment and what does not.

The new regs require the forex brokers to periodically publish data on what the winning/losing percentage breakdown is for their traders. We have all been repeating the old adage that 95% of...
Well the thing is, they are trying to regulate the Spot Forex now (with the Risk Disclosure Statement and the Leverage Capping) as if we are exchange-based market like Futures so they DO owe us some real protection, the "safety of funds" that they offer the exchange-based market. Otherwise it's like whacking us with the stick and the stick but with no carrots.

The Risk Diclosure that the brokers have to make is with trading performance excluded. We all know that the reason traders fail is because of the lack of trading skill and experience. The market carries its own risk, everybody knows that, but if you don't trade, you won't incur it. So if you exclude trading performance from their risk disclosure, I will be interested to see how much "risk" they can report.
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  • #53
  • Sep 2, 2010 2:43pm Sep 2, 2010 2:43pm
Quoting Forexia
Well the thing is, they are trying to regulate the Spot Forex now (with the Risk Disclosure Statement and the Leverage Capping) as if we are exchange-based market like Futures so they DO owe us some real protection, the "safety of funds" that they offer the exchange-based market.
Forgive me if I am wrong, Forexia - I am not an expert - but are accounts you may have with a futures broker (for instance) necessarily government-insured? The exchanges themselves require FCM's to pony up money into a fund that is there in case of failure of exchange members. But the exchanges themselves are publically-held companies and I don't think they are insured by the fed. The value of CME stock could go to zero and the exchange itself could fail, theoretically.

If you trade through a bank, or a company that allows itself to be regulated as a bank, then the FDIC coverage applies. Other than that, what else is there in the way of government-provided insurance?
"If The Fool persists in his Folly he will become wise." - William Blake
  • #54
  • Sep 2, 2010 3:10pm Sep 2, 2010 3:10pm
Quoting The Fool
Forgive me if I am wrong, Forexia - I am not an expert - but are accounts you may have with a futures broker (for instance) necessarily government-insured? The exchanges themselves require FCM's to pony up money into a fund that is there in case of failure of exchange members. But the exchanges themselves are publically-held companies and I don't think they are insured by the fed. The value of CME stock could go to zero and the exchange itself could fail, theoretically.

If you trade through a bank, or a company that allows itself to be regulated...
Hmmn, ok well, in that case, and I assume you are right, why don't they set up a Fund for all the Spot Forex brokers to contribute to so when something happens, they can use that fund protect the investors. They are requiring brokers to everything else now, this shouldn't be difficult for them to push onto the brokers. If the brokers are well-capitalized, then they should be able to contribute and the ones who can't, they will have to state so publicly. Now that's what I call real protection in terms of "protecting the small investors".

This is how it's done in Canada. In Canada, regardless what kind of brokers you are, Daytrading Stock, Spot Forex, Futures, Banks, whatever, you contribute to this fund called CIPF. And then if anything happens, that fund is used to reimburse the customers. And when you invest in Canada, you look for the sign "Member of the CIPF". Can something similiar be set up in the US for Spot Forex especially it is being regulated now?
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  • #55
  • Sep 2, 2010 3:22pm Sep 2, 2010 3:22pm
And having a fund set up there for reimbursing small investors in case of adverse circumstances is FAR MORE effective than requiring brokers to post their financial information on an annual basis.

Although it's nice to know your broker's financial information, that's not necessarily an assurance that your funds is safe. Technically, if OANDA wants, they can just decide to close stop and skip town with all of those "net adjusted capital" that they so faithfully reported in that "Financial Information" PDF document with the NFA, and you would still be left holding the bag. There is really no recourse to go after them, to get your money back except through legal means.

Not that OANDA would do that, but if you really think about it, if something like that really happens, there is very little real protection offered to the small investors.
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  • #56
  • Sep 2, 2010 3:41pm Sep 2, 2010 3:41pm
Quoting Forexia
Hmmn, ok well, in that case, and I assume you are right, why don't they set up a Fund for all the Spot Forex brokers to contribute to so when something happens, they can use that fund protect the investors. They are requiring brokers to everything else now, this shouldn't be difficult for them to push onto the brokers. If the brokers are well-capitalized, then they should be able to contribute and the ones who can't, they will have to state so publicly. Now that's what I call real protection in terms of "protecting the small investors".
Capitalization of the spot brokers has been a problem in the past. What you are suggesting is that the spot brokers make themselves closer and closer into something that already exists - the exchanges. Honestly, I am not sure whether or not the fed "requires" the exchanges to keep a pool of risk protection money. That probably was dreamed up by the exchange members way back as a good thing to have to protect themselves.

Why do we need redundant platforms to facilitate derivatives and commodities trade? The only thing the spot brokers offer that you can't get in futures is the ability to trade small size. They (CME) have tried to penetrate that market with the "micro" currency contracts - $1.25/tick I think they are. But there's no volume. If the spot industry were gone then the small trade business might move into futures and those contracts would have better volume.

Beyond all that, the government does not "owe" you any protection for your risky ventures. If you lose your paycheck playing slots at the casino, tough shit. If you lose $million playing poker, do you go crying to the government? You might get a room & a ho and a limo to the airport from the casino management, but that's just so you'll come back and do it again. Honestly, Oanda didn't send me a card last time I had a margin call - I think I'll write my congressman.
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  • #57
  • Sep 2, 2010 3:42pm Sep 2, 2010 3:42pm
This is why I use "non-discretionary" funds in my currency trading.....think about it, many "investment advisers" recommend things like 1% or even 5% in high risk investments (at least they used to...little did they think the DOW would be 'high risk')...I'm doing this with 1% of my retirement...if I completely bust (which I have never "blown" an account and wouldn't even dream of it; I have mental stops), I'm not up sh!t's creek, as they say

Regards,

Jeff
  • #58
  • Sep 2, 2010 3:46pm Sep 2, 2010 3:46pm
Quoting The Fool
Capitalization of the spot brokers has been a problem in the past. What you are suggesting is that the spot brokers make themselves closer and closer into something that already exists - the exchanges. Honestly, I am not sure whether or not the fed "requires" the exchanges to keep a pool of risk protection money. That probably was dreamed up by the exchange members way back as a good thing to have to protect themselves.

Why do we need redundant platforms to facilitate derivatives and commodities trade? The only thing the spot brokers offer that...
Hello The Fool....I assume that the CME contracts are NOT like market makers in that there needs to be another trader to take the opposite side of your position to make it happen...this is why if I do switch to CME products, I'm going with the mini at $12.5 a tick and not the micro at $1.25...I prefer the flexibility OANDA (and even other brokers) offers, and even the CME $12.50 contract seems to only have about 4,000 average daily volume if I read it correctly...perhaps enough for my needs...

Regards,

Jeff
  • #59
  • Sep 2, 2010 3:54pm Sep 2, 2010 3:54pm
Quoting stljeffbb
Hello The Fool....I assume that the CME contracts are NOT like market makers in that there needs to be another trader to take the opposite side of your position to make it happen...
Hi Jeff,

I am admittedly a greenhorn and still learning how all this works. But futures is not necessarily a kinder gentler game. There are "market makers" in futures, I believe - they are exchange members who are given the task of making a market in the contracts - they are required to facilitate trade beyond a certain volume. They get priveleged information about order flow in order to do this, and they are trading with their own funds.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #60
  • Sep 2, 2010 4:09pm Sep 2, 2010 4:09pm
Quoting The Fool
Capitalization of the spot brokers has been a problem in the past. What you are suggesting is that the spot brokers make themselves closer and closer into something that already exists - the exchanges. Honestly, I am not sure whether or not the fed "requires" the exchanges to keep a pool of risk protection money. That probably was dreamed up by the exchange members way back as a good thing to have to protect themselves.
Quoting The Fool
Beyond all that, the government does not "owe" you any protection for your risky ventures. If you lose your paycheck playing slots at the casino, tough shit. If you lose $million playing poker, do you go crying to the government? You might get a room & a ho and a limo to the airport from the casino management, but that's just so you'll come back and do it again. Honestly, Oanda didn't send me a card last time I had a margin call - I think I'll write my congressman.
The Fool, I am NOT saying the government should reimburse me if I lose money trading with the broker. I lose money? I lose money; it's my business, and I don't expect anybody to come to my rescue because nobody owes me no nothing.

I am talking about "safety of funds" that people who trade with exchange-traded instruments enjoy. "Safety of Funds" in terms that when you deposit money with the broker, if the broker disappear or fail tomorrow, you as the investor can still get the money that you have left over with the broker back. Say if you invested $1000 with Retail Forex Broker XYZ, and you lost $400 in trading so you should still have $600 there with Broker XYZ, and let's say Broker XYZ skipped town, right now, under the current regulation for Retail Forex brokers, you are left holding the bag. But if Broker XYZ had been a "exchange-traded" Futures broker, you would get your $600 back.

I say CFTC should have Retail Forex brokers contribute to a fund and if something like what I described above happens, small investors are covered. Canada has it. Why can't US set up something similiar? Especially now, the Spot Forex is already being regulated like an exchange.
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