The American Dream Moves Offshore?

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.

At long last the CFTC released its proposals for clamping down on energy speculators last week. It also requested public comment on its newly released proposals for the regulation of the retail forex industry in the United States. Now that document runs to a total of 193 pages, but forex commentators have extracted the essentials for us. Michael Greenberg at ForexMagnates.com says that it's:

Goodbye US Forex industry.

According to Francesc Riverola at FXStreet.com a coalition of forex brokers think that:

US $1 Billion Industry In Danger If CFTC Proposal To Limit Leverage 10 to 1 Passes

This is the section of the new proposal that they're talking about:

The Proposal would… require RFEDs or FCMs engaging in retail forex transactions to collect security deposits in a minimum amount in order to prudentially limit the leverage available to their retail customers on such transactions at 10 to 1.

It's not that long ago that the US regulators reduced leverage on forex to 100:1. That forced most US retail traders to roughly double the amount of cash in their accounts. Now they are proposing to force those same traders to put ten times as much money into their accounts. The bottom line is that it is pretty difficult to continue to run any sort of a business if your government imposes on you the need to raise twenty times as much capital in a few months. Any business faced with that herculean task will either close down or move to a jurisdiction that doesn't impose such a constraint.

Here at the Trading Gurus we do appreciate that in the new gold rush that is online forex trading the same rules apply as in the original gold rush.  The shovel sellers all make money, whereas most of the miners don't.  However if you are a United States citizen and you are currently running a profitable forex "mining" business it looks like you don't have too many choices.  Move the capital invested in your business offshore, or choose to invest in instruments that will allow greater leverage than OTC forex, such as currency futures.  Maybe that's what the powers that be in "the land of the free" are really expecting to happen?  I personally think that they will be sadly disappointed by the outcome of that particular cunning plan.

If you would like to inform your government about your own opinion of their latest plans here's how:

1. Send an email to: [email protected].
2. Make sure the subject line includes:  “Regulation of Retail Forex”
3. Include the identification number RIN 3038-AC61 in the body of the message.

Supposedly you can also go to http://www.regulations.gov/search and follow the instructions, but I couldn't find the document in question there. If anyone takes that route and succeeds please let me know as soon as possible!