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Follow on Google News | CFTC New Proposal: Death of the US Forex IndustryA new CFTC proposal that limits leverage for retail forex traders may mark the end of the US Forex industry.
By: Matthew Berry For those who aren’t savvy on the workings of the forex market, leverage is a loan offered to the individual trader in order to intensify the outcome of the trader’s results. As of now, the leverage offered by most forex brokers is 100:1. This means that for every 1 unit of currency a trader places into a trade, the broker will match that unit with 100 units. Leverage is important in forex trading as price fluctuations tend to be very minute; the fluctuations of small investments in a currency pair will not yield substantial profits or losses. In the past, the CFTC and NFA have enforced laws that have bettered the experience and safety precautions of individual traders. To give you an example of such laws, effective October 31, 2008, the NFA enforced a new rule that would require that all Forex Dealers would have a minimum capital of $20,000,000. This rule was passed to ensure that customers’ accounts were secured in the event that a broker went bankrupt. Forex brokers understand the need for increasing regulations, as it provides credibility to the industry. As the regulations continue to increase, it was inevitable that a plateau would be reached in which the regulations would become so austere and demanding that they would go against the very standards they set out to accomplish and hurt the individual retail forex trader. The brokers and individual traders partaking in the forex industry believe that his new rule of 10 to 1 leverage will hurt the retail forex industry and all of those who participate in it. Reasons why enforcing this rule will hurt the retail forex industry: •This rule promotes individual traders to find unregulated brokers overseas, which places customers’ accounts in dubious companies •This rule promotes oversea brokers to create marketing campaigns against NFA/CFTC regulations, which damages the image of the NFA/CFTC •This rule will make it unaffordable for traders with small investments to trade forex under NFA/CFTC regulations •This rule forces traders who are content with their broker to look for other broker options •This rule will cause a thriving industry in the United States during one of the deepest economic recessions to fail If you disagree with the CFTC proposal to restrict leverage to 10 to 1, you may submit your comments to secretary@cftc.gov Include “Regulation of Retail Forex” in the subject line of the message and the identification number RIN 3038-AC61 in the body of the message. The CFTC welcomes all comments until March 22nd, 2010. All comments received will be featured on CFTC's website. End
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