FDIC Reveals new Foreign Exchange Rule

Y’all know that you can expect your boy, Forex Ninja, to have the latest inside scoop on the forex scene! This week, I heard through the grapevine that the Federal Deposit Insurance Corporation (FDIC) plans to set a new rule regarding foreign exchange for the banks it regulates.

The word on the street is that the FDIC wants to tighten things up by requiring retail traders (defined as those who have less that $10 million in assets) to post 2% of their transaction’s value as margin when trading major currency pairs. As for more exotic pairs, they’ll need to put up 5% of the trade’s notional value in margin.

In addition to higher margin requirements, the FDIC wants banks to be more transparent with its customers. If the FDIC has its way, banks will have to keep more detailed records of their customers’ transactions. They’ll also be asked to keep their customers well-informed; especially with regard to the fees they’re being charged.

So how will these rules affect future gazillionnaire retail traders like you and me?

Well, the new FDIC rule might not have much of an impact on the forex scene as a whole since there’s only one bank under the FDIC that’s involved in the retail forex business, CitiFX. Besides, the rule is basically the same as the new regulations issued by the Commodity Futures Trading Commission (CFTC) last September.

The most important part we can take from this is that retail traders could face more limitations in trading. If you’ve been reading our brand spankin’ new School of Pipsology, you’ll know that leverage is often the cause of [financial] death among budding retail traders. You can lose your money, your house, your wife, or even your iPad2 in one trade if you don’t manage your position sizes carefully.

With the new rule, small-time traders will now have to shell out more money in order to trade the same position size. While this may be seen by some as a downside to access and liquidity in forex trading, it will also help keep newbie traders from betting the farm, or being too careless in their trades.