FXCM UK Increase Margin Requirements
Following on from its "no hedging" and first-in first-out rule changes, the National Futures Association in the United States will shortly impose further restrictions on the activities of its Forex Dealer Members (FDMs). In notice Notice I-09-18 dated September 24, 2009 the NFA informed brokers that:
As of November 30, 2009, the alternative [net capital] requirement is $20 million plus 5% of the amount of customer liabilities over $10 million.
and that:
Beginning on November 30, 2009, all FDMs must collect a customer security deposit of at least 1% for the currencies listed in Section 12 and at least 4% for all other currencies.
FXCM LLC are members of the NFA, and whilst (unlike some other brokers) they should have no problems with meeting the new net capital requirements, they were the first US broker to inform their customers about the reduced leverage they will be able to employ after the end of next month.
This is all part of the ongoing saga in which the US forex industry battles it out with their regulators. In a new development however, I have received an email from FXCM Ltd. informing me that the margin requirements in my UK based spread bet account will also be increasing on Sunday, November 22nd. FXCM UK tell me that:
Margin requirements will be increasing, particularly for currency pairs with EUR or GBP as the base currency. FXCM's experience in Hong Kong, where significantly lower leverage levels (higher margins) are mandated by law, suggests that trading with lower leverage may assist clients in trading more successfully over an extended time period. The new margin requirements are intended to reduce risk by restricting traders from using excessive leverage.
No mention of UK regulators. No mention of the NFA Financial Requirements section 12. FXCM are apparently reducing leverage in their UK accounts for the benefit of their customers:
When trading volatile currencies with high leverage, one bad trade can wipe out the profits from many good trades. By trading with less leverage, a trader can reduce the risk of a big drawdown from one bad trade.
Do you suppose that other UK forex brokers offering 1:500 leverage and more will rush to follow FXCM's lead?
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Comments on FXCM UK Increase Margin Requirements
Only the questionable firms in questionable jurisdictions
will continue to offer 1:500 nonsense leverage with
minimal deposit of $5 to open an account. But
serious firms in UK will offer 1:100 and 1:200 forever.
Now, I am sure CFTC and NFA will try to strongarm
FSA to follow suit or the next move would be to make
it illegal for US citizens to go offshore to do forex.
This won't stop smart people. You simply find a
friend in UK and open the account in that person's
name and address and you trade it yourself. No
other nation will let NFA dictate crap to them.
Even if they ask that they disallow US citizens
from opening accounts with them. They will all
protest stronger. It is now painfully clear that
NFA paid a hefty sum to MetaQuotes to develop
MT5 platform.
Hi Jon,
I'm not as certain as you seem to be that MetaQuotes will have been bankrolled by the NFA!
If you're smart you can also set yourself up as some sort of corporate entity to get around the "US citizen" restrictions.
Jim
How would I set up a corp ent to get around margin req. please give an example. Not that I would do it I am just curious. Thx in advance
Hi William,
My comment was made back in February 2010, and quite a lot has happened since then!
As I keep on saying, I'm no lawyer. However I believe the new (October 2010) regulations have closed that particular "loophole" in much the same way that Jon was predicting.
The relevant bit says that "retail customers" include:
Jim