CFTC Forex Rules In Effect October 18, 2010

fxguy77

Recruit
Messages
1
I'm sure many of you have heard by now but the CFTC published final rules for Forex trading in the United States last night.

The best article out right now about this is available here: CFTC Forex Rules In Effect October 18, 2010 | Turnkey Trading Partners.

The actual CFTC information can be found here:
http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/forexfinalrule_qa.pdf

It looks like things will stay largely the way they have been with a drop in leverage and a requirement for all brokers to register.

Time to breathe a little bit easier
 

Pharaoh

Colonel
Messages
19,779
Thanks for the info. I've checked the CFTC ruling.

The good news - 50:1 on "majors" - this I can live with. The bad news - 20:1 on "other currencies".

The really bad news is twofold. First, the commission gets to review these leverage periodically, so this could easily be changed. Even worse, the NFA can change these when they think it's necessary, and can also designate and change what currencies they classify as "major".


The proposed rules included a requirement that FCMs and RFEDs serving as counterparties in off-exchange forex transactions collect from retail customers a security deposit of 10 percent of the notional value of the transaction. This requirement has often been referred to as a “10 to 1 leverage” requirement.

The leverage requirement in the proposed rule has been replaced in the final rules with a mechanism whereby the Commission sets parameters (the release specifies a minimum 2 percent security deposit in the case of major currencies and 5 percent of the notional value of the transaction for all other currencies) and the Commission periodically reviews the appropriateness of those parameters. NFA is authorized to set specific security deposit levels within those parameters, and is required to review periodically and adjust as necessary both the particular security deposit levels and the designation of which currencies are “major” currencies, in light of such factors as changes in volatility.
So, if the NFA thinks the EURUSD is either too volatile or not volatile enough, they can reduce the leverage requirements or decide that it's not a "major" currency.

There are already rumors circulating that some part of this or another ruling will end the ability of US Citizens to open or keep accounts with offshore brokers. Maybe this is just being circulated by US brokers trying to keep business from moving offshore, and maybe it's real. If you have any good info on it, post it here.

You can read the full text of the ruling here - http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/forexfinalrule_qa.pdf
 

westofpluto

Recruit
Messages
10
Some questions: First, there seems to be some confusion regarding whether US traders can continue to use "foreign" brokers (like FXCM UK or Dukascopy) to avoid the new regulations. Many people assume that this will still be OK, but at least one broker (IBFX) says otherwise:

Interbank FX Supports CFTC Final Rules Regarding Retail Forex Transactions

So does anyone know what the real story is? Does the new ruling have the power to prevent US traders from trading at FXCM UK and Dukascopy etc, or not?

I agree with Pharaoh. I can live with 50:1. What I can't live with is 20:1 for "other currencies". I would imagine that the usual currencies (EUR, USD, GBP, JPY, CHF) would certainly be included in the list of majors but if others like CAD, AUD and NZD are excluded them I'm screwed.
 

pdxdonsmith

Recruit
Messages
5
What's the practical difference?

Is there a practical difference between trading 1 mini lot at 100:1 versus 1 standard lot at 10:1, other than the margin requirement? It's the same return per pip move, right? You are just limited by your (now higher) collateral requirements. Yes?
 

digital_soul

Private, 1st Class
Messages
28
I don't understand the reason why this is happening, buti hope it stays in the US only.

US seems be a terrible place for forex. All the FIFO rules and no hedging and now 50:1 leverage? Geez. I'll stick with my AU brokers :)
 

NickB

Forex4Noobs Rep.
Messages
85
Well that's America for you, hopefully we can find oiut what they classify as major pairs.
 

youngstr

Recruit
Messages
9
So basically the pip value on a mini lot of eurusd is the same, but instead of needing 10 dollars us to leverage it you'll now need 20 dollars? am I understanding that correctly?

If that is correct then the fat cats and banks will just pony up the extra cash and not worry about it, but that will pretty much put an end to " I started with a 250 dollar mini " stories, this is going to affect the smaller bankrolled traders, its gonna discourage people that are new to forex, I just can't get behind this new legislation, it seems the target is the ppl who don't have a lot of money, nope, not a fan of it at all.
 

Pharaoh

Colonel
Messages
19,779
What authority do these people have?
The CFTC is the government regulator that has authority over Forex Trades. This industry desperately needs some regulations. The problem is that they mix improvements with crazy stuff.


So basically the pip value on a mini lot of eurusd is the same, but instead of needing 10 dollars us to leverage it you'll now need 20 dollars? am I understanding that correctly?
Assuming you are trading what the NFA calls a "major pair" (no definition of this provided by them yet, so I don't know where the cutoff between major and non-major will be) and that they didn't suddenly alter the requirements.

I personally never open a trade using anywhere near 100:1. What kills me on this is that I occasionally catch a beautiful long-term trend and scale in. I do this in steps, and lock in profits with stoplosses as I go. My account is effectively at zero risk, but if I'm trading a "non-major", I can only buy $20 worth with each dollar in my account (assuming the NFA or CFTC don't tighten things further).

I guess my onshore accounts will only get used for low-leverage long-term trades. I'm not sure yet if I get to keep my offshore accounts.
 
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