Pop quiz, FX hotshot.
There’s a bomb in your market. Once your position hits 200:1 leverage, your trade is armed. If your trade drops below your stop-loss, it blows up. What do you?
In an action film, a distressed trader might call in Sandra Bullock and Keanu Reeves to mitigate losses. In the FX world it’s all down to the CFTC.
And because the CFTC isn’t a hot-headed LA cop, its response, as we noted earlier, has been cautiously restrictive — rigging the clock, so to speak, to 10:1 so it can’t ascend anywhere near 200:1.
Unsurprisingly, FX day-traders the US over are not happy. On top of an already strongly-worded response from FX dealers, FX forums and blogs are now initiating a strategic campaign against the CFTC to save their leverage.
Here follows a flavour of the commentary.
Leche Mocha on ForexFactory:
“They need to leave the retail leverage alone! People are supposed to have a choice about the amount of leverage they use. This is still America. Concentrate on important things like fraud protection and not just screwing over the retail guy’s leverage. IF they don’t want another Boston Tea Party on their hands, they better leave the leverage alone!”
A contributor called LEXngton also on ForexFactory:
I’ve been trading forex for over 5 years now and make a living doing so and never have I blown/lost my account balance at a 100:1 forex broker. The rule must not be accepted and all forex traders who have a vested interest need to express their opinion at the address given above.
Forexcrunch’s campaign:
The absurd proposal by the CFTC to limit leverage in forex to 1:10 is causing anger. Here’s how you act to stop it! The CFTC is beginning to regulate American forex trading. In their initial proposal, there’s an idea to limit leverage to 1:10. High leverage is one of the key characteristics of forex trading. If this proposal is implemented, it will practically kill the American forex industry, as traders will move their business elsewhere. So, here’s what you can do.
I’m quoting the information from a fresh blog post from FXStreet’s CEO, Fransesc Riverola. Thanks Fransesc! If you disagree with the CFTC proposal to restrict leverage across the board to 10 to 1 leverage, you may submit your comments to secretary@cftc.gov.
A very mad Francesc Riverola (the FXStreet CEO referred to above):
Two days ago I made a post with a very mistaken headline CFTC To Regulate Retail Forex With the honoring purpose of fighting fraud, the CFTC was about to issue this week its proposal to implement tighter controls and to better rule the market. Well, the proposal is now public and the correct headline should have been: CFTC to Kill US Retail Forex Market How do they pretend traders not going offshore and forcing to close their doors to all US FDMs by limiting leverage 10 to 1???? while overseas you can have much bigger leverages like 200 to 1 in UK???? As soon as I gather more info, I’ll come back to you This is non-sense Francesc.
Surely some sort of middle ground leverage-figure would have been sensible?
Related links:
Swiss regulator dishes out first forex license - FT Alphaville
Anna’s story – FT Alphaville
A Twin Cities FX scandal – SEC freezes Pat Kiley assets – FT Alphaville