CFTC vs FXDC – Battle for Fair Leverage

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CFTC = A US governmental body that seeks to regulate and monitor financial markets. However, like any government body the CFTC is inept. It is run by imbeciles who know little to nothing about what they’re trying to regulate.

FXDC = The Forex Dealers Coalition is comprised of the big boy brokers in Forex: GFT, FXCM, FX Solutions, FXDD, CMS, Oanda, IBFX, Gain Capital, Alpari US, and PFG. Between them these brokers have billions in funds and they swing one massive punch.

Come March these two mammoths will collide. In case you do not know, the CFTC seeks to impose a maximum of 10:1 leverage on the Forex market. Obviously the FXDC is opposed to this rule. Imposing such a restrictive rule on US brokers will effectively destroy the US Forex industry.

What does this mean for you as a trader? Well it doesn’t mean you won’t be able to trade! Worse comes to worse you can transfer your account to a UK broker or open a new account with a UK broker. So don’t worry it is not the end of Forex for you.

My belief is that this will never happen. However, we must remember that we are dealing with a governmental body. This of course means that all logic will be thrown out the window. Therefore CFTC may very well attempt to impose this rule on brokers.

The good thing is that the FXDC has enough money to hire the world’s best lawyers Denny Crane and Alan Shore (you will only get that if you’re a Boston Legal fan). If the CFTC and FXDC end up in court it will likely take several years for the case to be resolved. Therefore it is highly unlikely the rule will actually come into effect any time soon.

Anyway, enough rambling on by me. The point of this post was to show everybody what the brokers have to say about this. Check out the FXDC page below to read about the issue and see what you can do (please note link opens in new window):

no longer available

Here are links to statements from individual brokers on these proposed rules (please note links open in new window):

GFT: no longer available

Forex.com (also known as Gain Capital): no longer available

Alpari US: no longer available

PFG: no longer available

Oanda: no longer available

IBFX: no longer available

Have your say, what do you think about the 10:1 leverage rule? Comment below!

21 comments

Irwin Godin

I sent letter to CFTC earlier as did many of the noobs. President Ronald Reagan said it best: Government isnt the solution to the problem. Government is the problem.

dallia

$&^%*!!!
you can write to the head of the CFTC but that’s guessing the guy gives two beer farts about what the trading public thinks. Maybe he does? If so try crayon and squat real low, aim low and miss and you might be talking to the fellow on his level. I wrote to him that and told him I knew where his crack baby was and the only response from him was is the kid’s name Carl Jr?
On a happier note Albania is very cheap, the most pro-American place on earth, brilliant cuisine, great beaches, women who as anyone from the Balkans can attest to are generally stunning and the Albanians ladies are particularly lovely. And Foster’s beer is sold everywhere. I think just one hour off GMT. Great place for any American to live and trade from. I agree if it goes to court CFTC is done for anyway.

B.Mandel

As a client at FXCM, they have already begun the process of dealing with this issue.
Small advantage of UK based account, assets are “held away” from brokerage and not “comingled”. Significant “protection” in the event of insolvency…(Madoff)

forexmark

I wouldn’t say it won’t happen Nick. It has happened to some level in Canada. we can no longer leverage 100:1. I’m from BC and I can’t get a broker outside of Canada…federal regulations.

The best leverage I can do is 33:1.

NickB

@forexmark:

There is a difference between Canada and America though. The American brokers are already banding together and my thinking is they will take this to court. To the best of my knowledge there was no public outcry in Canada nor did Canadian brokers band together to take on the rule makers imposing the unfair rules. Did the Canadian trader put up a fight at all?

Erico

The plan to set the maximum leverage for US retail forex to 10:1.
This is by far the worst of the regulations. While it is important to
protect naive first time traders who might out their life savings by
using too much leverage, this will affect everyone else who uses
sensible money management. It will only make traders look out for
other countries that have favourable leverage limits. One of the
attractiveness of forex trading is the leverage offered and one of the
most important forex lessons is money management and using leverage
wisely. Leverage is a very important tool and albeit dangerous tool.
What the Government should do is educate the public instead of punishing
the traders who know how to effectively use the tools. That’s like taking out the sharp tools out so that uneducated, naive, get rich quick traders don’t get hurt. New traders should be advised to get educated about the forex market before
starting to trade. Forex is hard work, you have to put in the hours to reap the benefits.

cevka

go spread bet

Conrad

If they lower the leverage to 10=1 ,my interest in this market will fade away

Nate Parham

Just like or government to screw with the few good things we have left. They cant get anything else right , i really don’t know why they think they should be giving us rules on our leverages dealing with our own money. They don’t give us a choice on what they blow our hard earned money on. I say we all get together to start our own little country without all the taxes and government. Haha only if that would work, well i guess we have to voice our opinion . Join in a tax revolt also, onlinetaxrevolt.com , lets get our voice out , all for the fair tax and 100 to 1 leverage speak now or forever hold your well u have nothing left. Thanks
Nate from the U.S.A.

Shawn

I know of tons of people who blow all their money on online poker. Why are forex brokers being antogonized?

RR

The brokers don’t like this idea, why? because nearly all of you are using too much leverage. Because of this and other noob practices like tight stop losses and positive R:R most of you will lose money to them. 10:1 leverage is still too high. However, if the brokers are forced to 10:1 they will have to make more money in other ways (because it wont be so easy to clean out your accounts) this will mean larger spreads.

wenzi

I think the margin requirements will stick and they should. All of this came about by to legal cases ( CFTC vs Zelener, CFTC vs Erskine ) which said the CFTC could not regulate fraud in the retail forex industry. The 2008 Farm Bill in the US changed this and the CFTC is now responsible for retail Forex.

There are few problems with off exchange Forex, ( lack of a central counter party and fund segregation ) that does not exist with on exchange forex trading. If these brokers really cared they would create their own regulated exchange ( Such as Nadex ) and trade on it for their clients.

They won’t because that would be the end of their dealing desks, stop running and their profits. They are complaining against this rule, not to fight for the ‘little guy’ but to protect their dealing desks and the profits that come with it.

And by the way, the CFTC is a much better regulator than the SEC. The SEC limits day trading leverage to 4:1 and 2:1 overnight, and requires $25,000 in the account to allow day trading. The CFTC allows greater than 100:1 leverage on futures that are on an CFTC exchange and without a minimum requirement for day trading.

Lee Joo Mong

Where I live, I believe in saving lives more than profits. Those who can not afford the initial capital to start with 10:1 leverage unlikely to be suitable for live forex trading (they lack the stamina/discipline required to focus on the forex trading)

Example: If the trader gets insomia from profit with the first trade done. That trader more likely to commit suicide if it was a much heavier loss instead

Sundarajoo

I agree with CFTC on the 10:1 leverage, however imposing the rule may be difficult. Brokers can use their moral values by restricting new traders to 10:1 leverage and after 1-2 years increasing the leverage. However, brokers should not have leverage in excess of 50:1. I am sure most of you are aware that professional traders do not leverage more than 5:1 leverage. Why should than novices do more than that leverage. If brokers can advice clients to trade forex as a business rather than that of a speculative nature, the industry will move to a healthier situation in the long run.

Olivenip

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RichardMew

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