How did we get to this point?


I posted this on my website and also wanted to include it here just to keep the debate going. Remember this is not just a U.S. problem as the NFA has decided to start trying to legislate across borders and whatever the big political nut jobs want, they will get, unless the silent majority gets louder!

How did we get to this point?

I feel it is important to give some context to the situation we are currently in here, but the history of regulation in the U.S. foreign exchange market is a long and complex one, so I will be brief. In 2004 the federal court in the U.S. ruled that the CFTC (Commodity Trading Futures Commission) could not target fraud cases in the OTC forex markets because they were outside its remit. Then in 2008 the U.S. Congress passed legislation that returned regulatory authority of the forex markets back to the CFTC after a flood of cases involving fraudulent foreign exchange dealers targeting retail investors.

That's when the NFA (National Futures Association) came into being. Andrei Pehar, Chief Currency Strategist at says "What happens is the NFA suggests these rules, and the CFTC accepts and enacts them (the CFTC fully admits forex is not their area of expertise, which is why they originally empowered the NFA to take this area over). The problem is that the NFA is NOT a consumer protection agency (their website is .org, not .gov) - they are a trade organization made up of, funded by, and created to further the interests of… futures brokers. National Futures Association. And there’s no denying that retail forex competes directly with their members’ business interests... It gets worse! Starting April 1st, the NFA intends to try and start legislating across borders, by forcing offshore brokers and IBs to register with them as well."

What CFTC proposes

To achieve regulation and crack down on the tremendous amount of scams, the CFTC wants to include the ruling passed by the NFA last year that all foreign exchange dealers are registered with a regulator. This has been welcomed by dealers, so too has the proposal to impose a minimum capital requirement of $20 million dollars in order to be a registered broker in the U.S. which acts as a capital cushion to protect consumers and is an important step towards regulating the industry. Also in November of last year the NFA already reduced the leverage ratio for foreign exchange trades from 400:1 to 100:1. But now the proposal to slash the amount of leverage from 100:1 to 10:1 has unleashed an outcry from brokers and dealers alike.

This new CFTC ruling , if enacted, would mean that a client would need to increase the amount of money they post in a security deposit account held with their dealer to 10 percent of the value of each trade from the current level of about one percent. This would mean that for every $10 you want to trade on foreign exchange you have to post $1 as a security. This move was unexpected because leverage limits were dramatically reduced six months ago by the NFA, the CFTC's little stooge to the forex industry in the U.S. .

On January 20th, an FXCM client wrote: FXCM sent a letter out to all their clients actually stating they oppose this and asking them to write to the CTFC. I’m amazed… I’ve heard individual people who work there grumble about the rules (off the record), but I have never seen a big company like this take such a public stance on an issue.

I'm still waiting on FXDD to do the same, especially since just 2 months ago they received their licensing with the NFA. Must be great to get a license with the same group that's going to put you out of business in just a few more months!

So what's being done about this?

The Foreign Exchange Dealers Coalition (FXDC), which is made up of nine major firms, is working on a unified response to the CFTC’s proposals. The coalition is trying to ensure a balance between protecting the consumer whilst not stifling business. The FXDC affirms on its statement that the U.S. $1 billion industry is in danger if CFTC proposal passes. “This revenue is money generated from a product that is in many ways an export. Furthermore, as capital markets open in the BRIC countries the number of new accounts that will flow out of places like China and India will lead to huge job and revenue gains in the United States.” Says the Foreign Exchange Dealers Coalition. “Trillions of dollars of trade volume are at stake. This is money that could (and should) be booked in the United States as taxable revenue. But if this rule passes the United States could well be costing itself billions of dollars in taxes down the road.”

Also from the FXDC letter last week:
“The case against the 10 to 1 leverage rule is clear. The rule will be a boon to foreign forex dealers (both regulated and unregulated) who will grow entirely at the expense of retail forex dealers in the United States. Thousands of high paying jobs will be lost and the potential for tens of thousands of more jobs will forever vanish as well. Consumers will be hurt and more vulnerable to fraud. And the United States will toss away one of the most promising export industries that it has, all in the midst of 10% unemployment. There is no good reason that this should be so.”

In Summary

Basically, if implemented, the proposed changes could have the opposite effect from what the CFTC is trying to achieve. All you do is drive legitimate traders like myself off shore, and what you still have left in the U.S. are the fraudulent dealers who don’t operate within the law anyway. It will cost US jobs, US tax revenue (like I give a rat's ass, but it's true) and more traders will get ripped off by brokers outside of US jurisdiction where there is less regulation, so it does more harm than good!

In my opinion, the cure is EDUCATION, not restricting what people can and cannot do with their investment decisions. As with any investment strategy, you are responsible for what you do with your money and that includes investigating those you will have to ultimately partner with and trust in the process. Government was invented to protect people and their property, not to limit their potential! This is a classic example of government over regulation. 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 sites like this one are here to help.

Please send an email to:

Include "Regulation of Retail Forex" in your subject heading as well as the identification number RIN 3038-AC61 in the body of the message.
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Black Knight

Private, 1st Class
CFTC: Don't get mad... take ACTION!

Great post! Here's how to follow up...

CFTC: Don't get mad... take ACTION!

Emergency online town hall meeting today at 14:00 GMT to plan organized resistance:

Information on how to submit your formal complaint to the CFTC:

The full text of the CFTC proposal (much more in there than just 10:1):

Public comments received so far:

On-going updates & discussionr:


Wonderful thread Watchman.It light of all events unfolding from the NFA,is it not possible for stakeholders in retail forex business to come together under one umbrella and ensure that a commission or agency that is specifically to regulate the entire market activities in the US is established,perhaps that might likely be the solution?