CALL TO ACTION: CFTC 10:1 - Share what you wrote here

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After a brief conversation with FXDD regarding my continued concern about their lack of any formal announcement or stance on this CFTC issue I was informed that they do have plans for opening an off-shore offshore office in Malta shortly. He went on to say that at the moment they cannot go into detail regarding the specifics of the operation, but hopefully will have an accouncement shortly. I am praying that this isn't their way of blowing smoke and that such an operation exists.


My response to the CFTC proposals

(Submitted Jan. 26, 2010 via the CFTC Website)

As an American, and a retail forex trader for over three years, let me first say that I wholeheartedly appreciate and support the CFTC's proposal to require registration of all U.S.-based currency dealers and brokers as a way to tame fraud in this burgeoning, but critical, industry.

Despite having many off-shore broker options available, and though I must comply with far more restrictive anti-hedging rules promulgated by the National Futures Association by doing so, I have always preferred to keep my currency trading accounts with U.S.-based, NFA-registered brokers. I do so on the (perhaps misguided) assumption that even though current rules and laws provide little guarantee of protection against fraud, I would at least be able to file legitimate complaints with the U.S. government and access the U.S. judicial system if legal action were ever required to pursue and prosecute fraudulent brokers.

Thankfully that has never been the case for me and I have found the U.S.-based dealers I've worked with to be generally fair and reputable. In essence though, my concern for fraud protection has always outweighed my desire for more open trading rules, which makes the CFTC's proposed registration requirements and clarification of jurisdiction very welcome.

I view the CFTC's proposed new minimum capital requirements for FCMs and RFEDs in much the same light, as a trade-off between smart fraud protection at the retail level outweighing the obvious barrier it imposes at the corporate level to legitimate new and smaller brokerage firms increasing competition to the ultimate betterment of the industry as a whole.

However, I fear these great steps forward in investor protection will be completely obviated if the CFTC then follows through with the additional proposal limiting retail forex investor leverage to 10:1.

At a time we're repairing economic damage caused by massive corporate and consumer over-leverage, the 10:1 limit appears logical and reasonable on face. However, there is a clear distinction between too much corporate debt which presents a systemic risk to the economy and too much consumer debt which is driven by consumption on one hand, as opposed to the legitimate use of leverage to fund growth-producing investment activity by retail investors on the other.

While a retail investor exposes himself to personal risk by over-leveraging his positions, he does not impose a systemic risk to the economy by doing so. Nor does he even present a systemic risk to his broker assuming the NFA's current and CFTC's proposed minimum capital requirements are enforced. As with all investing activity, it should be left to the investor to decide what is the appropriate amount of risk to take, and suffer the consequences of those decisions whether good or ill.

More importantly, the practical effect of the 10:1 restriction is that it will raise the cost of currency investing too high for average retail investors like myself to continue participating.

Under 10:1, it would take an individual investor just over $10,000 to open one trade for 1 single lot of a USDxxx pair. If the trade went just a few pips against the investor, even that sizable $10,000 wouldn't be enough to prevent a margin call. If the trade went immediately in the investor's favor, it would still need to generate another $10,000 in equity just to allow for opening a second 1-lot trade, making it impossible to scale into a good position. Even at the mini-lot level the 10:1 rule would require $1,000 cash and equity on-hand to open each individual trade.

This may be an adequate cost structure for very large investors or corporate accounts, but it would be impossible for me and many other retail investors to continue trading with U.S.-based brokers under these circumstances. My desire, and I believe my right, to access international currency markets would now outweigh my concern for fraud protection.

I would not only be forced to move my money and accounts outside the U.S. to off-shore brokers who would then reap the economic benefits of my trading activity, I would also be forced to subject myself to the very risks of fraud the CFTC's other very worthy proposals seek to remedy. And, by dealing with non-registered off-shore brokers, my risk of being a victim of fraud would actually be even higher than it is today without the proposed rules. I simply cannot believe this is what the CFTC is seeking in terms of protecting American investors and I urge the Commission to reconsider the 10:1 maximum leverage proposal.


My letter to CFTC

Hi All,

Below is a letter I wrote to the CFTC regarding recent, new regulations imposed on Forex traders. The newest 10:1 margin rule is what drove me to write. This rule will probably drive me out of the Forex business, and maybe a lot of you too.

You have likely all received some sort of notification regarding these changes, along with information as to how to voice your concern.

Please feel free to do so, before you are no longer free to do anything!



PS. Please, keep your letters from taking on the tone of government bashing. The CFTC is looking for reasoned, level-headed responses. Threatening to form a lynch mob will get us nowhere.

The Letter:

Re: RIN 3038-AC61

To Whom it May Concern:

There are several forex forums on the internet where traders are posting the letters they have written to your office concerning this latest, proposed regulation. Several are well-written, reasoned responses by those whom are, obviously, experienced traders with valid concerns over what recent regulations, and proposals of pending regulation, will do to their trading businesses. Interestingly, these come from traders, not just in the US, but from traders all over the world. Many have trading accounts with brokers in the US. Others, simply see these new rules as a threat to their own trading environment, if they should ever be adopted by regulators in their own countries.

I, too, am a retail forex trader, and am writing to voice my opposition to, and utter astonishment over, these recent, and proposed regulations that will negatively impact the way that I am able to conduct my trading activities.

First, I would like to say that I do appreciate the intent to protect the trader from fraudulent and predatory forex establishments. However, as you will see from the example below, that these regulations do, and will further, negatively impact certain trading systems and strategies that depend on the freedom of the trader to operate in an environment that is not overly regulated.

Hence, I would like to submit a real-life example of a successful trading system/strategy that has been negatively impacted by the recent FIFO, and no-hedging regulations. In addition, I will show how the above-mentioned regulation will further impact, in a negative manner, most, if not all, traders whom have adopted this system in their trading practices.


The system itself is comprised of both signal indicators, as well as trading strategies and practices, that are designed to limit potential losses, and maximize potential gains. It is a system that accurately signals major reversals of any given currency pair, and even provides a trigger signal for entering into the trade. In addition to the system signals, the system strategy provides a definite place for setting the stop loss. Being a reversal system, the take profit is determined when the system signals that the current trend has exhausted itself and has reversed. The trader, then, performs a stop-and-reverse trade at the system-provided signal. This entire trade range is known as the Primary Trade Signal, or PTS.

In addition to the PTS trade, is another system-indicated trade range called a Secondary Trade Signal, or STS. This type of trade opportunity happens WITHIN the trade range of the PTS, and gives the trader the opportunity to take advantage of the major, smaller reversals that take place within the current, larger trend. This is also a reversal-type trade, and the system will indicate when the trader should, once again, stop and reverse the current (second) position.

In order to take advantage of this secondary type of trade, the trader needs to have the ability to enter into a trade in the opposite direction of the currently held position, on the same currency pair. The new no-hedging rule has eliminated this ability, and taken away a valuable opportunity.

Now, the workaround for this, as has already been noted in some of the aforementioned letters to the CFTC, is for the trader to have a second trading account through which he/she would enter a trade, in the same currency pair, but in the opposite direction of the trade in the first account. Therefore, one of the major results of the no-hedging rule is that it has FAILED to keep traders from hedging, but it has FORCED traders to divide their available trading margin among multiple accounts, thus, reducing the number of lots that can be traded in either account. Furthermore, this has the potential of tempting the trader to put him/herself at greater risk, by utilizing a higher percentage of margin in either, or both, accounts, in order to maintain the level of trading for which his/her system/strategy requires.


In this real-life example of a trading system, the trader also has the opportunity to scale in, and scale out, of any given trade. One of the methods for scaling in can be accomplished by using the reversal of the Secondary Trade Signal as the entry point of a scaled in position. This would give the trader a second position in the same direction as the initial trade signalled by the PTS. This position is, obviously, at greater risk of loss than the original PTS trade, since it is closer to the current price level than the first position.

Now let's assume that the second trade has moved into profit, and, for whatever reason, the trader has decided that it is time to take profit on the second trade. The trader determines that his/her original trade is still safely distant from the threat of price action, but because of the new FIFO rule, he/she is forced to take out the first trade, thus leaving the second position at a higher risk of being moved agianst.

THE EFFECT OF THE 10:1 Margin Rule

This is perhaps the most disturbing of the three new rules. The immediate effect is that many traders, with smaller accounts, will no longer be in a position to continue trading, and they may be forced to simply close their accounts. This would include those whom have traded responsibly, and exercised sound money management principles.

Another effect may be that it will drive traders to move their accounts to foreign brokers, thus exposing themselves to whatever may await them in a potentially unregulated environment. (I have read accounts of several traders whom have done this already.)

It is not difficult to imagine that there soon will be the need for further, new regulations that will make it against the law to do so.


From my perspective, these three rules have done little to help the individual trader. Rather, implementing these rules has simply forced traders into higher-risk situations, or will force many responsible traders out of the business.

It would be interesting to see the results of a poll, if one were conducted amongst active traders, to see how many would actually be in favor of such rules. My guess, is that, even traders whom have lost considerable amounts of money, would vote to eliminate these stifling regulations. If for no other reason, perhaps, because they may see them as further eroding the trader's right to choose how much risk they are willing to accept.

I would ask that, the 10:1 margin rule, the FIFO rule, and the no-hedging rule be eliminated.

Please allow traders to continue to trade in an environment that does not stifle responsible activity. But, please, focus on eliminating fraudulent and predatory activities of service providers, thus limiting the REAL problems experienced by traders in the Forex market.

Best Regards,


Wake Up and Smell the Coffee

I'm not sure how much this"filling complaints " thing is ganna help, the decision is already made and they know as well as we do how damaging is it for both traders and brokers, and they don't care ,what they have in mind is preventing the currency market from reaching the extreme level of volatility it reached back at the heat of the financial crisis ever again .

I hope you remember ,several countries in the G8 and the G20 meetings back then objected to the high level of volatility in the currency market during the crisis ,specially Japan and the Euro zone ,and they said that steps should be taken to avoid such things in the future , well there you go.

So let me tell you what that means for us:

1- This new proposition should be seen as a part of the "fixing the banks" bull shet and it will effect the worldwide forex market as American Banks are major liquidity providers , so even if you're trading with a broker outside the US, you're not safe from the effects ,small time bucket shops might be able continue providing 100:1 but the real brokers whom transactions are made in the real market will be forced to change their leverage .

2- Other countries will certainly follow the steps of the US as "fixing the banks" is a G8 policy.

3- This will decrease the volatility in the market making it harder to trade and make money specially with 10:1
Please correct me if I'm wrong
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Regulation of Retail Forex

Dear Secretary or whom it may concern,

Regarding Release: 5772-10
For Release: January 13, 2010

I am writing this email to you within the 60 day time period over concerns I have regarding your proposal to limit the Leverage in a Retail Forex Customers account to 10-to-1.

As a Forex Trader, I do recognize and support regulation that strengthens industry Oversight that is intended to protect Traders. However, your proposal to limit our Leverage to 10 to 1, will have a huge impact on the outcome of our Trades and our bottom line. Thus, it could also reduce our net incomes and our ability to provide for our families.

Many of us have chosen Forex as a career and invested large sums of money and years in learning the Forex Business. As it is, Forex is a very challenging business and the learning curve is huge… some of us, even had to learn to trade all over again after last year’s new FIFO rule.

Please consider us and the fact that you may put a lot of us out of business with such a limitation. We Traders are adults and already understand the risk involved in trading the Forex.

Retail Brokers that offer 200 to 1 or more leverage may need limits, but 100 to 1 Leverage is fair. So, should you set limits… Please re-consider what you’re proposing and don’t limit us to less than 100 to 1 leverage.

I must strongly disagree and voice my concerns over policies that clearly give U.S. Brokers and U.S. Traders such a disadvantage in the Forex Markets.

Thank you for taking your time to read this.

Kind regards,



Private, 1st Class
I understand you have a proposal to reduce the max allowable leverage
for US based forex brokers to 10:1.

Please do this only if you intend to shut down all forex trading in the
United States, and redirect all forex trading business to European and
other foreign destinations. Of course then you have no more jurisdiction
to make further changes in the name of security, safety or whatever.

My current broker is MB Trading, a US broker, and I don't want that to
change, so please don't force me to do so. I certainly will if this
regulation goes into effect.

Thank you,


I would like to submit a comment on the new proposed rules to limit leveraging to 10 / 1:
I cannot believe that you guys are proposing yet another arbitrary government regulation on one of the last avenues that a regular person can legally make money. The anti hedging rule and FIFO were completely baseless and profoundly destructive to all of the brokerage houses serving us clients, but this is almost as if it is intended to destroy the forex market access in this country. This has zero basis in logic and is not going to have the effect of "protecting" anyone ,what it will do is cause people to move massive amounts of money to offshore brokerages because intelligent people simply will not put up with interferance in an area that is clearly not their business. Not to mention all of the people that work at those brokerage houses will be out of work. I am curious how long it will take the government to figure out that more regulation = less jobs, wages, investments and a slower economy, and less regulation = more jobs, higher wages, more investments and a better economy.
The goal is to better the economy isnt it? or is it?
I havent been trading forex long, but this is something I really like, and am starting to understand it. I have lost money, about 100 bucks, and I have made a little money, around 200 but Im still learning. I didnt lose more because when I set up the trades, I pulled out my calculator to determine how much I could afford to lose. I did not spend a year of my time studying this market to have my profits regulated. I have the right to invest my money where I choose, and how I choose. My and most of the other forex investors only choice will be to go to an offshore broker. We are looking at ways to get the last set of ridiculous laws repealed, not more laws - please dont do this

Capital Trader


My feeling is that this rule will make the forex market illiquid..It.will shift alot of money offshore...but worst of all it will give the US banks more control over the forex market...and I really don't have to elaborate on the business ethics and morals of US Banks....They almost took down the world economy....due to their greed....and if you look at Wall Street current profits and bonuses...We find that they have learned nothing from the recession/depression experience and greed is still their number 1 priority...I'm sure that this government intervention was initiated by the Banks in order to eliminate competition....and if the government is so concerned about forex traders wellfare..Isn't it a shame that the banks and governments cared so much about real estate investors that millions of innocent people lost their homes because of Bankers greed....Governments should control banks and bankers...not forex traders. It wasn't retail forex traders that almost took down Britain was it???? Ha ha

Thanks for letting me share...

Capital Trader



Yeah, I've already closed my US brokerage account and moved offshore to Switzerland. Currency trading should be left alone and free from government interference. By the way, my Swiss broker is GCI (GFX Group) - the Swiss are cool and very astute business people, they haven't attracted 25% of European commerce by being 'air heads'. Their rates and commissions are comparable to any US broker; leverage is 200:1. Best of all, no NFA interference: hedging is fine, and no FIFO rule. Perhaps the only downside for some is, you're required to open with a minimum of US$2K or Euro equivalent.
Mike E.

haniff ashburn

Road to Self-Destruct

hello CFTC

this proposal will not only kill the global forex market as well as setting the prelude for other countries to follow.

we will not witness the forex market as it is now.

if you did this than china and india will lead the global forex market while the USA remains an insignificant dot in the global forex market.
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