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:
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.
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.
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 soapbox 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 firstname.lastname@example.org , 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!