Is sounds as though some US congressmen have been reading some of the thousands of complaints the CFTC has received about its proposals to reduce leverage on spot forex from 100 to 1 down to 10 to 1.
Yesterday CFTC chairman Gary Gensler was testifying before the House Committee on Agriculture Subcommittee on General Farm Commodities and Risk Management. The CFTC website has a transcript of that testimony, according to which Mr. Gensler informed the subcommittee that:
As directed by the 2008 Farm Bill, the CFTC in January proposed regulations concerning off-exchange retail foreign currency transactions. Pursuant to this authority, the Commission released for public comment a comprehensive scheme that would put in place requirements for, among other things, registration, disclosure, recordkeeping, financial reporting, minimum capital and other operational standards.
So far, the Commission has received more than 5,600 public comment submissions related to the forex proposal.
More on Congressmen Question CFTC 10 to 1 Leverage Reduction
Filed under Regulation by 
Recently FXCM UK started allowing users of their proprietary Trading Station II platform to trade contracts for difference (CFDs) in a range of non forex instruments. Maybe they should change their name to CFDFXCM? The now misleading name aside, this allowed UK customers of FXCM to start trading gold, silver, oil and a range of stock indices from around the world.
Their website doesn't seem to be up to speed on this yet, but in my inbox this morning was an email from FXCM informing me that:
FXCM is launching new trading instruments on your FXCM Trading Station on February 21, 2010. Now you can Spread Bet Oil, Gold and Global Stock Indices in addition to Forex—all on one platform!
This is very welcome news for FXCM customers who also happen to be UK residents. It means that if we manage to make a profit trading (sorry, I should have said gambling) any of these exotic new instruments the extremely generous UK Government won't charge us any tax on our "winnings".
FXCM have updated their video introduction to their spreadbetting platform to include the new instruments. If you want to take a close look at the small print about all this you can download it from the FXCM website here.
Filed under Brokers by
In the first response I have spotted made by a forex broker to their recent proposal to limit leverage to a maximum of 10 to 1, the CFTC earlier this week published a 6 page letter from Interbank FX on their website. Interbank FX welcome most of the other CFTC proposals, but say that the 10 to 1 leverage proposal:
- Is unnecessary to protect retail investors because this goal is already achieved through rigorous capital requirements…
- Will make retail forex trading in the United States uncompetitive and hence drive retail business either offshore… or to trading venues including futures exchanges and potentially banks or other financial intermediaries not regulated by the CFTC.
- Runs counter to the considered judgement of the NFA, which late last year began to apply a 100:1 leverage limit…
- Is inconsistent with the intent of Congress…
- Is inconsistent with the Commodity Exchange Act's requirement that the CFTC "take the least anticompetitive means of achieving the objectives of" the Act…
They then take another 4 pages justifying those bullet points, before reaching the following sobering conclusion:
The Solution is Regulation, Not Prohibition
Most of the CFTC's propsed rule is sound. Indeed these parts of the rule presuppose that there will be a U.S. retail forex industry to be regulated. Unfortunately, if the leverage limitations are adopted, no such industry is likely to exist.
Filed under Regulation by
In response to the proposed legislation to reduce forex leverage to 10 to 1, beleaguered US brokers have banded together to form the Forex Dealers Coalition to fight a common enemy; the CFTC! The Coalition have just launched their website, which urges their readers to:
Take Action Today to Protect Our Industry
and also helpfully provides an easy way to send appropriately worded (as far as the FXDC are concerned!) emails to the CFTC.
The boilerplate emails available include such helpful phrases as these for forex traders:
This unsustainable rule would drive U.S. forex dealers, which brings tens of millions of dollars into the U.S. banking industry each day, offshore into the hands of foreign competitors.
As an investor, I would be forced to take my business outside of the United States.
and these for forex industry employees:
Now is not the time for the CFTC to propose rules that would eliminate valuable high-tech service jobs, leaving thousands of additional Americans unemployed.
Unregulated forex dealers….. will be out of the reach of the CFTC and they will thrive.
Personally I have grave doubts that such entreaties will have a significant impact on the ultimate decision of the powers that be. Only time will tell.
Filed under Brokers by
It has been brought to our attention that the original link we published to the page on the CFTC website that allowed you to download the 193 page document detailing its newly released proposals to limit leverage in the retail forex industry in the United States to 10 to 1 now simply says:
The page you have requested is not available on CFTC.gov.
If you haven't read the new regulations yet, and you would like to know what your lords and masters have in mind for you please try this link to the new location on the CFTC website. The document has now reduced in size to only 50 more elegantly formatted pages, and is dated Wednesday January 20th 2010.
If for any reason that link should stop working too, please feel free to download the document from the Trading Gurus servers instead.
For the sake of complete transparency, we have also made the original version of the document available here too.
Filed under Regulation by
Fresh from his onslaught on retail forex traders, Barack Obama today took aim at another target instead. Those nasty, greedy bankers. According to Bloomberg Mr. Obama said in an interview with ABC that:
We’ve got a financial regulatory system that is completely inadequate to control the excessive risks and irresponsible behavior of financial players all around the world.
According to an administration official his suggested solution to this problem is to limit the size and proprietary trading activities of banks as a way to reduce risk-taking. The President also pointed out that:
People are angry and they’re frustrated. From their perspective, the only thing that happens is that we bail out the banks.
Perhaps somebody should whisper in Mr. Obama's ear that many people in "the land of the free" are angry and frustrated about something else entirely. They are angry about the bank bail out to be sure, but that anger is compounded by a "completely inadequate financial regulatory system" that doesn't only allow banks to fail. It also seeks to prevent US citizens from exercising their right to earn a living in the way that they themselves choose.
This news wasn't good for investors in banks over here in Europe either. According to the Wall Street Journal:
Shares in the U.K.'s largest banks sank Thursday as investors braced for proposals expected later in the day from U.S. President Barack Obama. Banks elsewhere in Europe were also falling, with the STOXX Europe 600 banking index off 2%.
Filed under Regulation by
The CFTC has now published details of how to comment on its new ten to one leverage proposals for retail forex accounts. If you click the link at the bottom of that page you can also read the initial comments that the CFTC has received.
At the time of writing there are 11 published public comments. Here are some extracts from those comments:
It is an unwelcome attempt to "save me from myself", that will only curtail my personal trading. I am sending a copy of this email to both of my US Senators.
STAY OUT OF TRYING TO RUN MY PERSONAL LIFE!!!!!!
This regulation will stifle small business by making small scale trading unprofitable.
I have reason to believe changes restricting leverage will delay my achievement of financial independence.
There are reasons why professional traders abandoned Futures in droves over the past decade. This won't get them back.
This piece of legislation would be disastrous to not only the economic recovery, but to future economic health as well.
Are you trying to allow only the rich people [to be] the only ones to trade forex?
To summarise, not one of the commentators approved of the 10 to 1 leverage proposal. Most of them pointed out that if implemented it would damage or destroy their income from trading if they didn't move their accounts offshore. Some got rather heated about it!
If you feel you would like to comment on the proposal yourself you can use the email address we mentioned yesterday or the new online form.
Filed under Regulation by
You are probably aware by now that the latest regulatory changes proposed by the CFTC, and in particular the reduction of retail forex leverage to 10 to 1, have caused a lot of consternation in the forex industry, to say the least! I anticipate that one side effect of the new rule will be that even more money will very soon be winging it's way from the United States over the Atlantic to the United Kingdom. If you are, or hope soon to be, a profitable forex trader then you really do need to start considering whether to send your hard earned moolah in this direction too.
Before you do that though think about this. Did you know that FOREX.com is actually Gain Capital Group LLC for example? If you did know that did you automatically assume that Gain Capital Ltd. was behind FOREX.com in the UK, and regulated by the FSA? If so think again!
Filed under Brokers by
When I started writing this blog in the Spring of 2009 I put forward the proposition that thanks to the advent of the internet and online retail forex brokers it had become possible for anyone possessing an entrepreneurial spirit, and prepared to put in the required effort over a number of years, to learn how to turn $1000 that they were willing and able to lose into a business that could support their family and themselves. I didn't say it was easy, but I did suggest it was possible. All that is about to change. It never was easy, and it looks like it's going to get ten times more difficult, for US citizens at least.
Immediately after creating this website I found myself blogging about a whole series of regulatory changes imposed upon US retail forex brokers following the inauguration of Barack Obama as President. In my view these changes had their roots on the Democratic party campaign trail, when Mr. Obama railed against the economic ills he and his advisors perceived to be caused by speculators in the energy markets. According to an article published on June 23, 2008 in the New York Times Mr. Obama said in a campaign statement that:
My plan fully closes the Enron loophole and restores common-sense regulation.
Since then of course we have all felt the effects of the "credit crunch", speculators in the housing and financial markets have come under the scrutiny of the Obama administration, and the cunning plan has been revised several times. Whilst closing the Enron loophole might make sense, the overall end result doesn't look a whole lot like "common-sense regulation" to me, I'm afraid.
Filed under Regulation by
The recent introduction by Alpari UK of "interbank spreads" on their MetaTrader 4 demo accounts has given us the perfect opportunity to demonstrate one of the potential problems you might encounter using the MetaTrader 4 strategy tester to evaluate a forex trading strategy you have developed for yourself, or even bought off a virtual shelf. Our regular readers will know that we have performed numerous live tests and backtests on the Forex MegaDroid "robot". Today is a Saturday, so I had a few minutes spare to run yet another backtest on the Droid. I started the simulation on March 30th 2009, the date the Forex MegaDroid team launched their creation amid great fanfare, and finished it yesterday evening. Here's what the Alpari UK MetaTrader 4 demo strategy tester showed me:
Forex MegaDroid weekend backtest on Alpari UK demo account
The bottom line? A net loss of $492.91 following a drawdown of 60.28%. Not very impressive, I'm sure you'll agree!
Here's the equity curve from another backtest that I performed yesterday evening, using exactly the same settings on exactly the same account:
Filed under Blog by
Recent Comments