In an earlier edition of Espipionage, I’ve discussed how financial industry watchdog NFA (National Futures Association) planned to implement a ban on credit card funding for U.S. forex accounts. This proposal was recently given the green light by the CFTC (Commodity Futures Trading Commission) and the reforms will come into play early next year.
1. Regulation will take effect by January 31, 2015.
According to the press release from CFTC, the ban on credit card funding for U.S. high-risk derivative transactions will take effect in January 31, 2015. This would apply to both new and existing customers, prohibiting them from funding their futures or forex accounts using credit cards.
2. Credit card ban will affect U.S. brokers.
In other words, offshore forex brokers are not covered by the regulation and may still be able to accept credit card funding. If you’re looking into this alternative to open or fund an account using a credit card, just remember that U.S. financial authorities are discouraging the use of borrowed funds to trade because of the volatile nature of the markets.
3. Electronic payment methods linked to credit cards are also banned.
The funding ban also covers electronic payment methods that are linked to credit cards. This includes PayPal, Skrill, and ChinaPay among many others. According to the NFA, this move would limit potentially fraudulent activity and would encourage traders to stick to using funds they already have.
4. Debit card funding will still be accepted.
With that, traditional bank transfer methods and debit card transactions are still considered acceptable methods to open or fund an account. “Forex and futures markets are both high-risk and volatile, and individuals who wish to participate should use only risk capital to fund their accounts,” explained NFA CEO Dan Roth.
U.S. check payments and fund transfers conducted through an automated clearing house are still viable options, although some brokers are already anticipating a decline in new clients due to this regulation.
5. NFA is just trying to protect investors.
Roth also added that allowing credit card funding would lead traders to risk borrowed money, something that goes against the NFA’s mission to look after investors. According to the NFA, members and their associates should observe high standards of commercial honor and just and equitable principles of trade in the conduct of their forex business.
In accepting credit cards as payment methods from their retail clients, brokers might wind up breaching these compliance rules, as an extensive study of 15,000 retail forex accounts revealed that majority of those funded through credit card transactions turned out to be unprofitable.
“Over the last decade, NFA has made significant strides in its regulation of the retail forex markets,” added Mr. Roth. “This ban is just another very important step to fulfill our mission to protect customers.”
What’s your take on this new ruling? Don’t be shy to share your thoughts and experiences in our comments section below!