Goodbye US Forex industry

So what do you when someone is constantly bullying and harassing you at your neighbourhood? Do you call the police,

So what do you when someone is constantly bullying and harassing you at your neighbourhood? Do you call the police, try to take a stand yourself or just run? Well, sometimes when nothing else helps and the situation is escalating, and this has been going on for ages it’s better just to find a new home. You tried your best and it’s not surrendering rather it’s an understanding that if someone powerful doesn’t want you there you can find better places where you can have your old quality of life back.

And my US Forex trading friends, the CFTC doesn’t want you there.

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It doesn’t want you trading Forex with the US brokers who will gradually shift their operations to offshore locations where the regulator doesn’t have a conflict of interest or a powerful futures lobby forcing it to make all the wrong decisions.

Latest from CFTC is that it is “seeking public comment” on proposed leverage reduction to 10-to-1. We all know what this means: the rule is all but finalized and they just let you feel as if you are important to their decision making process. Whether you are a large broker or a small time retail trader, this will probably make no difference to these guys with a very clear agenda.

Now, I’m sure i’ll surprise you here but I’m actually a fan of a lower leverage. HOWEVER, I don’t think it should be forced on ALL forex traders. High leverage is a number one reason that newbie forex traders lose all their money. However, many professional traders as well as money managers, hedge funds, etc use high leverage in order to achieve better returns or just because their strategies require that. Some also use high leverage in order to cheaply hedge their exposure in other forex transactions.

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Limiting leverage to novice traders is a great thing. Limiting leverage to ALL traders is horrible. I would recommend the CFTC to differentiate in their requirements and instead of imposing rules on all traders as if they were all identical set some kind of proficiency/experience test which will determine whether the trader can you use the leverage of his choice or be subject to a low leverage. Such test can be that trader’s testament to years of experience in trading or something of this nature.

I’ll send them this note, but I doubt it’ll make any difference. If anyone else would like to comment on that they are welcomed to send a note to: with “Regulation of Retail Forex” as the subject line. People, be nice or they will just throw your emails to garbage and ignore all other more balanced emails.

CFTC also oversees the vast Futures industry where many high leveraged products are present. Some are as leveraged as the spot forex right now. So why are these products aren’t limited to 10-to-1 leverage ratio? Why is it only the spot forex that is dealt with regulatory blows over and over again?

CFTC should have long time ago required all brokers to switch to ECN trading model and reduce leverage to novice traders. That’s it. That would have been so much better to the whole US forex industry, but I guess CFTC has it’s own considerations here…

Unfortunately as far as I know other regulators like FSA (UK) and FINMA (Switzerland) may take a similar approach as they look to work closely with the CFTC/NFA. Let’s hope they don’t but time will tell.

So my US forex friends, I suggest you don’t wait 60 days till the comment period is over or till the requirements are imposed – and they will be imposed as-is, find yourself a nice cosy offshore home and forget about all the problems you had at your old place.

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