CFTC Changing Retail FX Rules in the US?

There’s a storm brewing in the US retail Forex industry as I’m sure you’ve seen across forex forums, or even from your brokers, about the proposed rule changes coming down from the CFTC on the US Forex industry.

For those who have not yet read the 193 page proposal, you can read it here: CFTC Forex Rules Proposal

Now, while I always encourage due diligence on your part, I understand if you wish to bang your toes with a hammer for an hour rather than read this proposal. Before you go running towards your toolbox, you can read the CFTC press release page as it highlights the major changes.

Some of the points that we feel are important for the individual trader to know are:

  1. The new rules will require all RFEDs (Retail Foreign Exchange Dealers) and FCMs (Futures Commodity Merchants) in the US to register. Also, “Persons who solicit orders, exercise discretionary trading authority and operate pools with respect to retail forex would also be required to register, either as introducing brokers, commodity trading advisors, commodity pool operators, or as associated persons of such entities.”

    Basically, this means that in the US, all forex brokerages, forex account managers, investment pools trading forex, IBs to registered brokers, have to be registered. I think this is a great thing. It will help potential traders or investors weed out the potential scammers out there by giving them a chance to check out their registration number before giving them their hard earned money.

  2. The next big change is that a minimum net capital requirement of at least $20 million, plus 5% of any amount of retail customer liabilities that exceed $10 million.

    Brokers who cannot meet or find the funds to meet this requirement will probably have to move offshore. If you are trading with one of these brokers, it’s up to you if you want your money to move offshore with them or transfer your funds to a broker who can meet that criteria. Again, it’s up to you where you put your money, but I would seriously consider asking how this will affect your ability to trade and the safety of your funds during transfer.

    To find out which camp you’re in, please visit the CFTC’s most recent financial data page for Futures Commission Merchants or contact your broker and ask them about the proposed changes.

  3. Finally, the new rule change causing a ruckus across the forex industry is to set maximum leverage to 10:1 for retail forex traders in the US…

    Ok, I’m feeling a bit torn about this because I’m all about traders not over leveraging their positions, but I’m also about giving those traders who know how to control and manage risk the choice and ability to increase their position size if a trade goes their way.

    Also, if this rule does go into effect, it may hold back those new traders who have developed a profitable system and the discipline to manage risk, but have low starting capital, from getting their feet wet.

    In my opinion, this is a case of “over regulation,” and that “education” for traders is a better solution so that the few who don’t know what they’re doing with leverage doesn’t ruin it for the rest of us who do. The United States of America is the land of the free, where each forex trader should be able to make their own educated decisions about their money and take responsibility for their own actions, right?? Right!!??

Anyways, I’ll get off my soap box now to let you know that if you do not agree with the proposed changes, the CFTC is listening. These changes are not a done deal yet, and if you want to be heard please send an email to secretary@cftc.gov , with “Regulation of Retail Forex” in the subject line. Also, include “RIN 3038-AC61″ in the body of the message with your comments.

You can also send your comments by fax: (202) 418-5521

Or good ol’ snail mail: David Stawick, Secretary, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, DC 20581

Please know that your comments will become public record and any negative comments, including profanity, will probably end up crumpled and used in a game of office basketball. So be nice and remember that when you send in a comment you represent all of us forex traders out there! Good luck!

I’m curious to know what everyone thoughts are. Please comment below, take our poll below or visit our forum thread dedicated to this discussion. Thanks!


19 comments

  1. PipsDontLie

    The math at hand will prevent the vast majority of spot forex traders in the US from trading with US/NFA registered brokers. Quite frankly, the math also sugggests those marginally capitalized will be making risk and gambling-like errors, as well, but now only with bigger dollars involved (if taking the CFTC stance that traders are too stupid to manage their own money at 100:1, we have to assume at 10:1 they didn’t get a brain transplant). I agree, education is the key. If anything, force the retail brokers to require a “leverage knowledge” test before accepting a funded account. Let the NFA/CFTC monitor that and leave the traders their options. Once again, a decision made in a vacum wherein to protect the few is going to punish the many. I tried with vain to rally folks against 2-43(b), but the CFTC turned a deaf ear. So here’s my question to those in the know … who does the CFTC chairman report to? Who overseas the actions of the CFTC? Can Congress prevent them from doing outrageous things? Someone has to have authority over this group that sees themselves in an ivory tower. Seriously, who is the “direct report” for the CFTC? Who are they going to regulate when most of the traders’ money goes overseas if such a ruling is implemented? But to me, this just sounds like they are marching down that path announced by Obama, wherein the big goal was to make all the markets as much the same as possible. All the fun and much of the opportunity will be removed from the Forex with this kind of leverage ruling.

    Reply
  2. colstreamer

    This seems like a ridiculous rule especially to be made in the US, I mean it’s a bit too “big brother-ish” for the “land of the free”. I don’t think it will affect me per se, being in the UK, however I still feel it’s just really unfair, 1:10 leverage will make it impossible for some new traders with low starting capital to trade even micro lots.

    Reply
  3. PipsDontLie

    The math at hand will prevent the vast majority of spot forex traders in the US from trading with US/NFA registered brokers. Quite frankly, the math also sugggests those marginally capitalized will be making risk and gambling-like errors, as well, but now only with bigger dollars involved (if taking the CFTC stance that traders are too stupid to manage their own money at 100:1, we have to assume at 10:1 they didn’t get a brain transplant). I agree, education is the key. If anything, force the retail brokers to require a “leverage knowledge” test before accepting a funded account. Let the NFA/CFTC monitor that and leave the traders their options. Once again, a decision made in a vacum wherein to protect the few is going to punish the many. I tried with vain to rally folks against 2-43(b), but the CFTC turned a deaf ear. So here’s my question to those in the know … who does the CFTC chairman report to? Who overseas the actions of the CFTC? Can Congress prevent them from doing outrageous things? Someone has to have authority over this group that sees themselves in an ivory tower. Seriously, who is the “direct report” for the CFTC? Who are they going to regulate when most of the traders’ money goes overseas if such a ruling is implemented? But to me, this just sounds like they are marching down that path announced by Obama, wherein the big goal was to make all the markets as much the same as possible. All the fun and much of the opportunity will be removed from the Forex with this kind of leverage ruling.

    Reply
  4. colstreamer

    This seems like a ridiculous rule especially to be made in the US, I mean it’s a bit too “big brother-ish” for the “land of the free”. I don’t think it will affect me per se, being in the UK, however I still feel it’s just really unfair, 1:10 leverage will make it impossible for some new traders with low starting capital to trade even micro lots.

    Reply
  5. tradition

    I am an Indian. I have nothing to do with this law. But I like to comment that if the ‘leverage law’ was enforced, you can surely expect an another law is coming to regulate the money flowing outside US. The forex companies functioning outside US will be happy after these changes.

    Reply
  6. tradition

    I am an Indian. I have nothing to do with this law. But I like to comment that if the ‘leverage law’ was enforced, you can surely expect an another law is coming to regulate the money flowing outside US. The forex companies functioning outside US will be happy after these changes.

    Reply
  7. Panictrader

    I have a real hard time talking about this without popping a vein or a blood vessel in my head. It infuriates me that an elitist regulator catering to special interest and politicians can flush so many jobs, livelihoods and pastimes down the toilet in the guise of a “protect you from yourself” rule.

    This is not what the free markets are about! Everyone should be able to stand on an equal playing field regardless of how much money you have. Margin levels the playing field, that is what it is all about. Giving power to the little guy, giving an opportunity for the little guy to compete and make a living alongside others at the top of the pyramid. Unfortunately the elitist Nazi regulators are at the top of the pyramid with their buddies and ex- coworkers from the futures exchanges and they don’t like company. SCREW THEM!!!

    Reply
  8. Panictrader

    I have a real hard time talking about this without popping a vein or a blood vessel in my head. It infuriates me that an elitist regulator catering to special interest and politicians can flush so many jobs, livelihoods and pastimes down the toilet in the guise of a “protect you from yourself” rule.

    This is not what the free markets are about! Everyone should be able to stand on an equal playing field regardless of how much money you have. Margin levels the playing field, that is what it is all about. Giving power to the little guy, giving an opportunity for the little guy to compete and make a living alongside others at the top of the pyramid. Unfortunately the elitist Nazi regulators are at the top of the pyramid with their buddies and ex- coworkers from the futures exchanges and they don’t like company. SCREW THEM!!!

    Reply
  9. kjames45

    Attn : David Stawick, Secretary, CFTC
    and ALL CFTC policymakers:

    As a non-affiliated US-based Retail FX trader, please note for the record that I am STRONGLY OPPOSED to the 10-1 leverage limit as proposed in RIN 3038-AC61 relating to the Regulation of Retail Forex.

    Counter-productive effects

    This senseless limit would in NO way protect, aid or benefit me but rather would greatly harm me since this restriction, if passed,

    • would require that I submit substantially more margin-funds into non-protected, non-FDIC insured, non-SIPC eligible accounts, actually exposing me to increased risk in the event of bankruptcy of my Forex Broker.

    • would NOT divert my business into regulated-Futures trading (as the CFTC is probably hoping), but rather would cause me to seek an unreliable, higher-risk offshore FX broker to trade through, whose practices might be questionable.

    • would eliminate one of the greatest benefits of trading Forex : My ability to efficiently deploy my own trading capital in the way that I choose.

    Lower FX vols require far greater leverage
    FX volatilities are generally substantially lower than in the Equities or Futures market. Therefore, significantly more leverage is required simply to capture equivalent trading opportunities.

    Nanny not needed
    I do not want the CFTC to treat me like a child and dictate how I should trade. While 100-1 leverage is available to me – should I choose it – I am never forced to use it.

    The bottom line is that OTC Retail Forex trading is NOT Futures trading. Please do not try to treat it as such!

    PLEASE IMMEDIATELY STRIKE YOUR PROPOSED 10-1 LEVERAGE LIMITATIONS.

    Don’t let proposal RIN 3038-AC61 become an expensive lesson in unintended consequences….

    Thank you

    Reply
  10. kjames45

    Attn : David Stawick, Secretary, CFTC
    and ALL CFTC policymakers:

    As a non-affiliated US-based Retail FX trader, please note for the record that I am STRONGLY OPPOSED to the 10-1 leverage limit as proposed in RIN 3038-AC61 relating to the Regulation of Retail Forex.

    Counter-productive effects

    This senseless limit would in NO way protect, aid or benefit me but rather would greatly harm me since this restriction, if passed,

    • would require that I submit substantially more margin-funds into non-protected, non-FDIC insured, non-SIPC eligible accounts, actually exposing me to increased risk in the event of bankruptcy of my Forex Broker.

    • would NOT divert my business into regulated-Futures trading (as the CFTC is probably hoping), but rather would cause me to seek an unreliable, higher-risk offshore FX broker to trade through, whose practices might be questionable.

    • would eliminate one of the greatest benefits of trading Forex : My ability to efficiently deploy my own trading capital in the way that I choose.

    Lower FX vols require far greater leverage
    FX volatilities are generally substantially lower than in the Equities or Futures market. Therefore, significantly more leverage is required simply to capture equivalent trading opportunities.

    Nanny not needed
    I do not want the CFTC to treat me like a child and dictate how I should trade. While 100-1 leverage is available to me – should I choose it – I am never forced to use it.

    The bottom line is that OTC Retail Forex trading is NOT Futures trading. Please do not try to treat it as such!

    PLEASE IMMEDIATELY STRIKE YOUR PROPOSED 10-1 LEVERAGE LIMITATIONS.

    Don’t let proposal RIN 3038-AC61 become an expensive lesson in unintended consequences….

    Thank you

    Reply
  11. 4XRAT

    First I want to state that I have been to so many Forex boards and Forums over the past weekend and the buzz about the CFTC proposal is amazing!!

    Yet, there is just an incredible amount of misinformation out there.

    Is the CFTC trying to put the screws to us all?

    Well, it could be but then again…Maybe They Just Don’t Understand What They’re Talking About!

    On the question of leadership on all of the boards and forums I’ve visited this past weekend, I find astounding that people who are supposed to know these things aren’t even addressing what the real issue here. FOR GOD’S SAKE WOULD EVERYONE WAKE UP??

    As I read it, the CFTC 1:10 Forex Leverage Proposal in somewhere between MISGUIDED and outright LUDICROUS. It appears to me that the CFCT does NOT understand Retail Forex market trading and where money management ‘Risk’ can become hazardous to Retail Forex trading. If they DO understand the forex market then the proposal is disingenuous at best.

    The stated intent of the CFTC proposal is to protect retail traders from RISK.
    However, what the CFTC is proposing ‘INCREASES’ the retail traders ‘RISK’ by a factor of ’10 TIMES’.

    The math goes this way:

    At the current 1:100 leverage, for each $100.00 of his/her out of pocket Capital Investment RISK
    EXPOSURE the trader is entitled to trade $10,000.00 worth of currencies.

    At the proposed 1:10 leverage, the trader is entitled to trade THE SAME $10,000.00 worth of currencies but his/her out of pocket Capital Investment RISK EXPOSURE is $1,000.00 as opposed to $100.00.
    The CRTC proposal ‘INCREASES’ out of pocket Capital Investment RISK EXPOSURE by ’10 TIMES MORE RISK’
    Clearly something is wrong with the proposal; it is either terribly misguided or worse.

    How would the retail trader’s EXPOSURE TO RISK be REDUCED?

    What is the common sense answer that is being overlooked?

    Reducing LEVERAGE from 1:100 to 1:10 is NOT the answer. The proposal as it stands as a disaster-in- waiting for retail traders.

    In order to protect the new/naive/self destructive and or otherwise uneducated trader from him or herself, ACCOUNT MARGIN LIMITATIONS should be Revised so that the trader’s out of pocket Capital
    Investment RISK EXPOSURE is never any greater than 5% or 10% or his/her trading account at any time.

    Leave leverage alone. ‘LEVERAGE IS NEITHER THE PROBLEM NOR THE SOLUTION.’

    The answer to RISK EXPOSURE is NOT LEVERAGE CONTROL. In fact LEVERAGE CONTROL would have the exact

    OPPOSITE Effect by INCREASING RISK – ‘TEN FOLD’…

    The answer is ‘MARGIN CONTROL’.

    Apart from that, I would call on the CFTC to use whatever pro-active and aggressive steps necessary to keep unscrupulous brokers/operators and get-rich-quick-and-easy ‘fantasy’ educational scams OUT OF BUSINESS.

    I urge all Retail Forex traders to write to the CFTC regarding the proposal and use this sort of tact.
    You can feel free to use the body of this message as an outline for your message.

    Don’t only ***** and complain; give them a solution as well. Tell the CFTC to police RISK through Margin and Not Through Leverage.

    Send your comments directly to the CFTC at: secretary@cftc.gov.

    Please include ‘Regulation of Retail Forex’ in the subject line of your message and the identification number RIN 3038-AC61 in the body of the message.

    You can also submit your comments by any of the following methods (include above ID number):

    Fax: (202) 418-5521
    Mail: David Stawick, Secretary Commodity
    Futures Trading Commision 1155 21st Street, N.W.,
    Washington, DC 20581
    Courier: Use the same as mail above.

    In addition to this I suggest you C/C a copy to your area Congressman/Congresswoman…to impress upon the CFTC that you are willing to take your opposition to the CFTC proposal to a higher level.

    One more thing is this…don’t just Do Nothing because you think that in the worst case scenario you can get an account abroad…the CFTC wants to get it’s grubby little fingers into Europe too so…STOP THEM NOW BY TELLING THEM THAT THE PROBLEM IS NOT LEVERAGE!!

    Regards,

    Jeff

    Reply
  12. 4XRAT

    First I want to state that I have been to so many Forex boards and Forums over the past weekend and the buzz about the CFTC proposal is amazing!!

    Yet, there is just an incredible amount of misinformation out there.

    Is the CFTC trying to put the screws to us all?

    Well, it could be but then again…Maybe They Just Don’t Understand What They’re Talking About!

    On the question of leadership on all of the boards and forums I’ve visited this past weekend, I find astounding that people who are supposed to know these things aren’t even addressing what the real issue here. FOR GOD’S SAKE WOULD EVERYONE WAKE UP??

    As I read it, the CFTC 1:10 Forex Leverage Proposal in somewhere between MISGUIDED and outright LUDICROUS. It appears to me that the CFCT does NOT understand Retail Forex market trading and where money management ‘Risk’ can become hazardous to Retail Forex trading. If they DO understand the forex market then the proposal is disingenuous at best.

    The stated intent of the CFTC proposal is to protect retail traders from RISK.
    However, what the CFTC is proposing ‘INCREASES’ the retail traders ‘RISK’ by a factor of ’10 TIMES’.

    The math goes this way:

    At the current 1:100 leverage, for each $100.00 of his/her out of pocket Capital Investment RISK
    EXPOSURE the trader is entitled to trade $10,000.00 worth of currencies.

    At the proposed 1:10 leverage, the trader is entitled to trade THE SAME $10,000.00 worth of currencies but his/her out of pocket Capital Investment RISK EXPOSURE is $1,000.00 as opposed to $100.00.
    The CRTC proposal ‘INCREASES’ out of pocket Capital Investment RISK EXPOSURE by ’10 TIMES MORE RISK’
    Clearly something is wrong with the proposal; it is either terribly misguided or worse.

    How would the retail trader’s EXPOSURE TO RISK be REDUCED?

    What is the common sense answer that is being overlooked?

    Reducing LEVERAGE from 1:100 to 1:10 is NOT the answer. The proposal as it stands as a disaster-in- waiting for retail traders.

    In order to protect the new/naive/self destructive and or otherwise uneducated trader from him or herself, ACCOUNT MARGIN LIMITATIONS should be Revised so that the trader’s out of pocket Capital
    Investment RISK EXPOSURE is never any greater than 5% or 10% or his/her trading account at any time.

    Leave leverage alone. ‘LEVERAGE IS NEITHER THE PROBLEM NOR THE SOLUTION.’

    The answer to RISK EXPOSURE is NOT LEVERAGE CONTROL. In fact LEVERAGE CONTROL would have the exact

    OPPOSITE Effect by INCREASING RISK – ‘TEN FOLD’…

    The answer is ‘MARGIN CONTROL’.

    Apart from that, I would call on the CFTC to use whatever pro-active and aggressive steps necessary to keep unscrupulous brokers/operators and get-rich-quick-and-easy ‘fantasy’ educational scams OUT OF BUSINESS.

    I urge all Retail Forex traders to write to the CFTC regarding the proposal and use this sort of tact.
    You can feel free to use the body of this message as an outline for your message.

    Don’t only ***** and complain; give them a solution as well. Tell the CFTC to police RISK through Margin and Not Through Leverage.

    Send your comments directly to the CFTC at: secretary@cftc.gov.

    Please include ‘Regulation of Retail Forex’ in the subject line of your message and the identification number RIN 3038-AC61 in the body of the message.

    You can also submit your comments by any of the following methods (include above ID number):

    Fax: (202) 418-5521
    Mail: David Stawick, Secretary Commodity
    Futures Trading Commision 1155 21st Street, N.W.,
    Washington, DC 20581
    Courier: Use the same as mail above.

    In addition to this I suggest you C/C a copy to your area Congressman/Congresswoman…to impress upon the CFTC that you are willing to take your opposition to the CFTC proposal to a higher level.

    One more thing is this…don’t just Do Nothing because you think that in the worst case scenario you can get an account abroad…the CFTC wants to get it’s grubby little fingers into Europe too so…STOP THEM NOW BY TELLING THEM THAT THE PROBLEM IS NOT LEVERAGE!!

    Regards,

    Jeff

    Reply
  13. Pastrami

    Just another outrage being committed during our current President’s tenure. No wonder I’m not a Democrat anymore! I have accounts with two large forex brokerages. Just like everybody else, I flipped out when I heard about this, so I called and spoke with someone from each brokerage. Both did want me to send emails and make myself heard, but didn’t sound as freaked out as I was. One said that because they have offices in UK, Europe, Asia and Australia, money will be moved out of the US and things will continue just as they are now, but from an office outside of the US. The other brokerage wouldn’t really give me specifics, other than that they have lobyists and attorneys working on it and that they will cross that bridge when they come to it.

    Our government is stupid. Brokerages in this country will close, which translates into more unemployment, more buildings for lease and less tax dollars for our government to blow. It also means massive amounts of money moving from the US, to some other more intelligent country. Just what we need right now.

    Reply
  14. Pastrami

    Just another outrage being committed during our current President’s tenure. No wonder I’m not a Democrat anymore! I have accounts with two large forex brokerages. Just like everybody else, I flipped out when I heard about this, so I called and spoke with someone from each brokerage. Both did want me to send emails and make myself heard, but didn’t sound as freaked out as I was. One said that because they have offices in UK, Europe, Asia and Australia, money will be moved out of the US and things will continue just as they are now, but from an office outside of the US. The other brokerage wouldn’t really give me specifics, other than that they have lobyists and attorneys working on it and that they will cross that bridge when they come to it.

    Our government is stupid. Brokerages in this country will close, which translates into more unemployment, more buildings for lease and less tax dollars for our government to blow. It also means massive amounts of money moving from the US, to some other more intelligent country. Just what we need right now.

    Reply
  15. vanjuan

    Yes Pastrami,

    I have already received emails from the broker to move my account to the UK. All the they will do is make traders move the money out of the country to trade. Its sad that this great country is falling so far behind, just because of all this red tape. Always some new rule that they think will protect us. Ends up holding the country down. Just look at the dollar. Soon to be the Amero Currency if we continue this path.

    Reply
  16. vanjuan

    Yes Pastrami,

    I have already received emails from the broker to move my account to the UK. All the they will do is make traders move the money out of the country to trade. Its sad that this great country is falling so far behind, just because of all this red tape. Always some new rule that they think will protect us. Ends up holding the country down. Just look at the dollar. Soon to be the Amero Currency if we continue this path.

    Reply
  17. vr6man22

    If alot of trading accounts are moved to UK, will this not cause many people to not claim winnings on taxes?

    This should be a concern? Also how can US and Canadian governments know what trading you do in the UK? Will they know if you move your accounts and not pay taxes?

    anyone?

    Reply
  18. vr6man22

    If alot of trading accounts are moved to UK, will this not cause many people to not claim winnings on taxes?

    This should be a concern? Also how can US and Canadian governments know what trading you do in the UK? Will they know if you move your accounts and not pay taxes?

    anyone?

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>