Following yet another inept requirement by the NFA all US retail forex brokers were forced to make changes to their software. Not only working with the NFA requires a lot of compliance related expenses, but it now seems that there is another burden entailing constant modifications to the trading software.
It seems that FXCM is the first broker to implement the new required changes.
Back in September the 24th, the NFA required, amongst other things, 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. The currencies that qualify for the 1% security deposit are the British pound, the Swiss franc, the Canadian dollar, the Japanese yen, the Euro, the Australian dollar, the New Zealand dollar, the Swedish krona, the Norwegian krone, and the Danish krone.
NFA being the NFA probably sought to make sure that the clients’ funds are more safe and bigger portion of it will be in a security deposit. But a collateral result of this was a forced reduction of leverage.
Not a bad thing at first glance, as many know newbie traders lose their pants very quickly when they use very high leverage such as 1:400 or even 1:700 in some cases. 1:400 leverage means that for every $100,000 you are trading the actual capital you are risking is only $250. However this also means that a tiny move of the market against you will wipe you out immediately.
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On the other hand, professional traders and EAs who know how to handle their trades sometimes prefer high leverage which allows them to achieve more profits with less capital. There are a large number of strategies built just for that.
So just like the anti-hedging FIFO requirement imposed by the NFA a few months ago this might benefit the small and inexperienced trader but surely harms the more experienced traders. The result, again, would be more brokers shifting offshore and more US traders shifting funds to offshore entities, some of them of dubious quality.
I couldn’t find FXCM’s Press Release yet but did find the new requirements pages:
Check out FXCM’s new margin requirements table (US traders): http://www.fxcm.com/forex-margin.html to see the various new margin requirements as well as several helpful tools and explanations in order to understand this new requirement better.
UK traders go here: http://www.fxcm.co.uk/forex-margin.jsp