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How to make Forex better - and maybe save it from the regulators

  • #1
  • First Post: Aug 25, 2006 1:06pm Aug 25, 2006 1:06pm
This started out in another thread but I felt it was worth its own discussion.


In the end, if regulators finally come in and kill our leverage and margins and makes us like futures, it will not be because of complainers. It will be, because upon review, Forex is being run too much like a gambling sites. Prices too vaguely based on the market to be considered investing or trading. Where contracts specifically state the "the house" is counteparty to all deals and all deals will be settled based on "the houses" data. All of the other markets have a central clearing entity and, therefore, can be verified in any dispute.

Forex is awsome, it pays all my bills, I would hate to have to make the adjustment to futures or even equities. But, when a broker can make up their own spreads, spike stops, hold prices until the market suits their position again, it is not trading. If they are claiming that you are trading the forex market, then these activies are fraud by definition. If they are saying that your agreement them allows them to "make the market" that you are trading in, then it is not Forex at all, it is a gambling site by definition. This is the legislators and regulators problem with Forex. And, unfortunately they are right. The only way to defeat the legislators arguement is to make it so that a broker cannot control the data that you trade by. Have a 3rd party supply the data with total transpearancey and have the trader and broker agree to that data source. That would immediately eliminate all of the lying, cheating and bull crap.

Would love to hear from everyone on this.
Profit is where readiness meets Opportunity
  • #2
  • Aug 25, 2006 1:21pm Aug 25, 2006 1:21pm
Hi,

The thing here is, can it even be regulated at all ?

What I mean is that the Forex is an international system, therefore you cannot just regulate it in the US while influencing the entire world.

Let's say all US brokers have to minimize all their leverages. This would suck, obviously, but what prevents me from signing up with a Swiss broker, or an English broker.....you see my point ?

It is not like we are talking about the NYSE or the AMEX that trade on American Land mostly american stocks. We are talking about an international trading system that can be traded from every corner of the world.

The US forces the US brokers to cut leverage ? Guess what, a great opportunity for all the international brokers to make sure they keep the current leverages untouched (if their gov allows it), so that they can get all the unhappy US customers.

I really see it close to impossible for anybody to regulate this....at least globally....

Mr.Future
"Lunch ? Lunch Is For Wimps !"
  • #3
  • Aug 25, 2006 2:34pm Aug 25, 2006 2:34pm
What would be so bad about regulation? I for one would appreciate having some authoritative body that a broker has to answer to when they participate in shady activities. Further, security of funds and minimum capital requirements would give the business the ligitimacy that it is sorely lacking. The only ones that would be hurt in the process would be micro-mini traders that can't pony up the cash that would inevitably be required and the shady brokers, but I think thats a small price to pay to avoid another refco disaster.

I don't know where you guys are discussing this, but most futures contracts are at 50:1 or 100:1 as is, so there is little risk for margin to be reduced. It's not quite 400:1, but that is excessive anyway.
  • #4
  • Aug 25, 2006 5:47pm Aug 25, 2006 5:47pm
The how of it is really the question. If the U.S. Forex brokers developed a governing body that agreed on a central data provider or a network of certified data outlets, we could certainly make a huge advance in the quality of Forex. I think a central single data source would be tough. But I think the systems and technology are already in place to have 5 or 10 certified transpearant networks in the U.S. There would be some administrative costs, but I think it could be easily done. If a dealer wants to deal Forex in the states he would have to join one of these regulated fully transpearant netwoks. As traders we would have access to the data source of our chosen broker.

As far as how we would stop a shady Forex broker in Belize or South Africa, the answer is, we wouldn't. We couldn't. But, it would not matter as long as the governing body did not ruin our competetiveness by killing the leverage or imposing ridiculous margin requirements. I can't imagine any serious trader wanting to do business with a shady overseas broker when they could have a regulated, fair broker with the same benefits.

As for the leverage, I personally think 100 to 1 is plenty. I did not know futures were up to 100 to 1. I thought they maxed at 40 or 50 to 1. But if futures are 100 to 1, I can't imagine any governing body specifying anything less than 100 to 1 for Forex.

We could even let the foreign brokers join our certified networks. All that they would have to do is agree to function by the regulating bodies rules and subject themselves to U.S. laws

I say it is win-win.
Profit is where readiness meets Opportunity
  • #5
  • Aug 25, 2006 8:21pm Aug 25, 2006 8:21pm
I don't know....I just think that not too many people think of the forex as an "individual traders" thing, since it is obvious that the most money is exchanged between big banks and big corporations.

We, the individual traders, are just a tiny part of the big picture.

If we had more influence on the game maybe somebody would care more, but I believe that it is all up to these big banks or corporations to make up the rules in the end.

And once again, the fact that the forex is traded internationally makes it incredibly difficult to regulate, if not impossible.

Future
"Lunch ? Lunch Is For Wimps !"
  • #6
  • Aug 25, 2006 9:13pm Aug 25, 2006 9:13pm
Quoting MrFuture
If we had more influence on the game maybe somebody would care more, but I believe that it is all up to these big banks or corporations to make up the rules in the end.
Future
Wow, scary and very very dangerous. This thinking is what spawned the Enron disaster. Big money always tries to make up the rules. It is our duty to keep them under control.

It is up to banks how they deal with each other at this point. But, that has nothing to do with how they deal with Traders. If banks or Forex IB's & ECN's want to deal to the general public they could be made to do it through a regulated medium. The two are not the same at all.
Profit is where readiness meets Opportunity
  • #7
  • Aug 25, 2006 9:38pm Aug 25, 2006 9:38pm
Quoting MrFuture
We, the individual traders, are just a tiny part of the big picture.

If we had more influence on the game maybe somebody would care more, but I believe that it is all up to these big banks or corporations to make up the rules in the end.
Future
This is actually no different from the Dawn of Speculative Trading.

As the other thread suggested... "Get used to it."
  • #8
  • Aug 25, 2006 9:43pm Aug 25, 2006 9:43pm
Quoting FXopportunist
But, when a broker can make up their own spreads, spike stops, hold prices until the market suits their position again, it is not trading.
Replace All.. Brker with Other Traders.
And soon you will have an understanding of Trading.

Supply & Demand!

Opportunityisnowhere !
  • #9
  • Aug 25, 2006 10:55pm Aug 25, 2006 10:55pm
Quoting Bemac
Replace All.. Brker with Other Traders.
And soon you will have an understanding of Trading.

Supply & Demand!

Opportunityisnowhere !
This is true, but it doesn't mean this isn't a good idea.

Even if the brokers are only directly responsible for a small percentage of losing positions from a certain type of trade (Probably much more influential than this), this could mean a significant difference in the amount of risk with your method. This could compound quickly and result in substantial loss.

If would think it's much like a casino, the game of blackjack typically only gives the house around a .5 or 1/2 % statistical edge. They still make a lot of money off of blackjack.

Even if standards were adopted (or regulated) that were only minorly effective, this could significantly effect your earings over time.

I don't know that the argument about it being an international market with no hope of regulation is correct though. I think you only need to get one country to adopt it as policy and if it's better for traders, the market will decide. The other brokers and players will adapt or die.
  • #10
  • Aug 26, 2006 12:09am Aug 26, 2006 12:09am
Quoting FXopportunist
Wow, scary and very very dangerous. This thinking is what spawned the Enron disaster. Big money always tries to make up the rules. It is our duty to keep them under control.

It is up to banks how they deal with each other at this point. But, that has nothing to do with how they deal with Traders. If banks or Forex IB's & ECN's want to deal to the general public they could be made to do it through a regulated medium. The two are not the same at all.
Are you suggesting we organize a concerted effort to try for change?

I for one think it would be achievable with a well thought out and well executed plan. The financial industry has always considered government regulation their nemesis. Faced with enough pressure they become fearful of impending supervision and declare their deepest concern. "We want this problem fixed more than anyone, and can do it best ourselves" they'll say.

Anything to do with the SEC would have to be avoided for our sake. It will have to be eliminated as a possibilty for a solution.

Some Senator looking to make a name, or gain exposure, could certainly be lobbied successfully. With all the successful traders here, I'm sure someone would be willing to pony up.

In fact, right now would be a perfect time to go for this. I think the US would be the top choice to implement something like this. With the US being the biggest player on this block, changing them would be the most likely cause the other kids to follow suit. The elections are coming up and this is an issue a politician could capitalize on.

The situation couldn't be better either. This type of market manipulation has the public's attention. In the wake of the Enron scandal, and other industry tactics are coming to light, fear is evident, many feeling vulnerable about their financial futures. This is ripe for the picking. Strong support from the public, a chance to cast the "big corporations" as the bad guy, and tons of publicity - it's like a golden apple hanging on the lowest branch. Again, even if it were only marginally successful, it could mean substantial profits.

You would just need to set up an organization and find a good firm to lobby for you. They'll help come up with a good plan and execute it, all the organization has to do is fund it. It would probably be relatively affordable too.
  • #11
  • Aug 26, 2006 12:31am Aug 26, 2006 12:31am
Quoting Darkstar
What would be so bad about regulation? I for one would appreciate having some authoritative body that a broker has to answer to when they participate in shady activities. Further, security of funds and minimum capital requirements would give the business the ligitimacy that it is sorely lacking. The only ones that would be hurt in the process would be micro-mini traders that can't pony up the cash that would inevitably be required and the shady brokers, but I think thats a small price to pay to avoid another refco disaster.

I don't know where you guys are discussing this, but most futures contracts are at 50:1 or 100:1 as is, so there is little risk for margin to be reduced. It's not quite 400:1, but that is excessive anyway.
400:1 is crazy! People will open up accounts and make one bad trade and end all their hopes. I trade 20-30:1. That is plenty for me.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #12
  • Aug 26, 2006 8:16am Aug 26, 2006 8:16am
Quoting Hagbard Celine
Are you suggesting we organize a concerted effort to try for change?

I for one think it would be achievable with a well thought out and well executed plan. The financial industry has always considered government regulation their nemesis. Faced with enough pressure they become fearful of impending supervision and declare their deepest concern. "We want this problem fixed more than anyone, and can do it best ourselves" they'll say.

Anything to do with the SEC would have to be avoided for our sake. It will have to be eliminated as a possibilty for a solution.

Some Senator looking to make a name, or gain exposure, could certainly be lobbied successfully. With all the successful traders here, I'm sure someone would be willing to pony up.

In fact, right now would be a perfect time to go for this. I think the US would be the top choice to implement something like this. With the US being the biggest player on this block, changing them would be the most likely cause the other kids to follow suit. The elections are coming up and this is an issue a politician could capitalize on.

The situation couldn't be better either. This type of market manipulation has the public's attention. In the wake of the Enron scandal, and other industry tactics are coming to light, fear is evident, many feeling vulnerable about their financial futures. This is ripe for the picking. Strong support from the public, a chance to cast the "big corporations" as the bad guy, and tons of publicity - it's like a golden apple hanging on the lowest branch. Again, even if it were only marginally successful, it could mean substantial profits.

You would just need to set up an organization and find a good firm to lobby for you. They'll help come up with a good plan and execute it, all the organization has to do is fund it. It would probably be relatively affordable too.

YES YES YES YES ! ! ! !
Thank you Hagbard Celine !!!
This could be acheived without a government agency!! Absolutely ! !
And, I really don't thing we are that far away. Look at what some of the ECN's do. They get their liquidity form a a group of banks that they have an agreement with. Their computers search out the best price for you (at least that is the concept). Now, just imagine all of these liquidity providers joining a network like that as members and providing the data feed to all parties involved for total transparency.
TOTAL TRANSPARENCY IS THE KEY.

When you talk about a network of 7,10 or 15 banks all on a central clearing network, imagine the stability, liquidity and fills. There would be very few disputes because all fo the data would be right there for all to see. It either did or did not trade there. There was or was not offers. END OF STORY.

I don't think you have to force all brokers to join. The bucket shops would just eventually dry up because they would no longer have a competitive product. EVERYBODY would be lined up to trade in this fully transparent, highly liquid, fair environment.
Profit is where readiness meets Opportunity
  • #13
  • Aug 26, 2006 8:26am Aug 26, 2006 8:26am
Quoting Bemac
Replace All.. Brker with Other Traders.
And soon you will have an understanding of Trading.

Supply & Demand!

Opportunityisnowhere !
Hello Bemac,

If this were true, I would have not a single argument. In fact, that is exactly what I wish were true!!!! But in retail forex it is only true when the conditions are in the brokers favor, which in fairness to the brokers is the vast majority of the time. When things get hairy is when all the crap starts. It is these moments when we all get to see the worst of Forex. I full realize that this mostly and primarily affect volitility players. Initially that is. But in anything, you must keep the battle in front of you and fight the fine points because if you don't, you will lose ground in a hurry. This is proven thoughout history in every aspect of power. Give an inch, if you will......
Profit is where readiness meets Opportunity
  • #14
  • Aug 26, 2006 8:34am Aug 26, 2006 8:34am
The regulators are only there to help the honest firms be more honest. But in reality only the good guys are good and the bad guys will be crimiinal anyway. The bad guys will always be in every market because its human nature and that is like saying because we have police thier will never be crime. Just hope your with a reputable firm and your money is sercure because as long as their are people involved you never know what is happening to your money or market.
Trading should be FUN, If not your playing over your head !
  • #15
  • Aug 26, 2006 8:36am Aug 26, 2006 8:36am
FXO, As you touched on in the other thread by Phil, I am beginning to lose the thread ( pun intended ) of your original arguement. Perhaps I am a bit lost. Are you arguing for regulation fo the Forex industry, or not? I thought I saw you arguing both sides... please clarify this for me.

Thanks Scott


Quoting FXopportunist
Hello Bemac,

If this were true, I would have not a single argument. In fact, that is exactly what I wish were true!!!! But in retail forex it is only true when the conditions are in the brokers favor, which in fairness to the brokers is the vast majority of the time. When things get hairy is when all the crap starts. It is these moments when we all get to see the worst of Forex. I full realize that this mostly and primarily affect volitility players. Initially that is. But in anything, you must keep the battle in front of you and fight the fine points because if you don't, you will lose ground in a hurry. This is proven thoughout history in every aspect of power. Give an inch, if you will......
  • #16
  • Aug 26, 2006 8:57am Aug 26, 2006 8:57am
Quoting smjones
FXO, As you touched on in the other thread by Phil, I am beginning to lose the thread ( pun intended ) of your original arguement. Perhaps I am a bit lost. Are you arguing for regulation fo the Forex industry, or not? I thought I saw you arguing both sides... please clarify this for me.

Thanks Scott
I am glad you brough that up Scott. Maybe the thread is improperly titled. Maybe not.
My ideal scenario would be for a private non profit organization to regulate a transparent network of liquidity provders. Something that we coud ALL be members of that would not have a finacial interest in the operation of regulation of the the network.
If no one is interested in or willing to take up such an endeavor and let the market take care of itself, I think regulation is a must and probably inevitable.
Profit is where readiness meets Opportunity
  • #17
  • Aug 26, 2006 3:18pm Aug 26, 2006 3:18pm
Probably the easiest way to go about this in my opinion would be to contact all the non-biased associations you can. MTA and other related groups would perfect candidates. I don't know enough yet about the NFA to opine about their integrity yet, though they may be another good choice.

Simply contact them with a clear description of your intent and purpose, then ask for their support. If they were only willing to allow you to publicize their name in support, it would help your credentials. I bet you would find most of them much more willing than that though.

These would be estabilshed organizations, with far more influence and resources. You may find this would simply be the catalyst needed to form a coalition with the purpose of achieving these ends.
  • #18
  • Aug 26, 2006 5:32pm Aug 26, 2006 5:32pm
You guys better hurry if you're going to save the world. The 5 year renewal for the CFTC is before Congress now. Maybe your congressman could get you a copy of the proposal. Forex will not slip through the cracks as it did in 2000. The CFTC has to be renewed every 5 years. It is not a permanant agency.

Phil
  • #19
  • Aug 27, 2006 5:27pm Aug 27, 2006 5:27pm
Quoting philmcgrew
You guys better hurry if you're going to save the world. The 5 year renewal for the CFTC is before Congress now. Maybe your congressman could get you a copy of the proposal. Forex will not slip through the cracks as it did in 2000. The CFTC has to be renewed every 5 years. It is not a permanant agency.

Phil
Is this what you are talking about???

[Federal Register: July 13, 2006 (Volume 71, Number 134)]
[Notices]
[Page 39671-39672]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13jy06-60]

=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION


Notice of Renewal of the Global Markets Advisory Committee

SUMMARY: The Commodity Futures Trading Commission has determined to
renew the charter of its Global Markets Advisory Committee. As required
by sections 9(a)(2) and 14(a)(2)(A) of the Federal Advisory Committee
Act, 5 U.S.C. app 2, sections 9(a)(2) and 14(a)(2)(A), and 41 CFR 101-
6.1007 and 101-6.1029, the Commission has consulted with the Committee
Management Secretariat of the General Services Administration. The
Commission certifies that the renewal of this advisory committee is
necessary and is in the public interest in connection with the
performance of duties imposed on the Commission by the Commodity
Exchange Act, 7 U.S.C. 1, et seq., as amended. This notice is published
pursuant to section 9(a)(2) of the Federal Advisory Committee Act, 5
U.S.C. app 2, section 9(a)(2), 41 CFR 101-6.1015.

Looks like from what I read at the CFTC wesite that it is renewed every 2 years. And, has just been renewed in 2006. It looks like a pretty routine rubber stamp to me.
Profit is where readiness meets Opportunity
  • #20
  • Edited 5:50pm Aug 27, 2006 5:35pm | Edited 5:50pm
Quoting FXopportunist
Is this what you are talking about???

[Federal Register: July 13, 2006 (Volume 71, Number 134)]
[Notices]
[Page 39671-39672]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13jy06-60]

=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION


Notice of Renewal of the Global Markets Advisory Committee

SUMMARY: The Commodity Futures Trading Commission has determined to
renew the charter of its Global Markets Advisory Committee. As required
by sections 9(a)(2) and 14(a)(2)(A) of the Federal Advisory Committee
Act, 5 U.S.C. app 2, sections 9(a)(2) and 14(a)(2)(A), and 41 CFR 101-
6.1007 and 101-6.1029, the Commission has consulted with the Committee
Management Secretariat of the General Services Administration. The
Commission certifies that the renewal of this advisory committee is
necessary and is in the public interest in connection with the
performance of duties imposed on the Commission by the Commodity
Exchange Act, 7 U.S.C. 1, et seq., as amended. This notice is published
pursuant to section 9(a)(2) of the Federal Advisory Committee Act, 5
U.S.C. app 2, section 9(a)(2), 41 CFR 101-6.1015.

Looks like from what I read at the CFTC wesite that it is renewed every 2 years. And, has just been renewed in 2006. It looks like a pretty routine rubber stamp to me.
LOL, no, the CFTC can not renew itself. That is an internal committee. The CFTC is a "sunshine agency" and must be renewed by congress once every five years. The last renewal was in 2000 so it is already a year overdue. The bill is before congress now.

http://thomas.loc.gov/cgi-bin/query/...mp/~c1094EmFkm::
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