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Why Do Some Retail Traders Hate Sensible Regulations?

Discussion in 'General Forex Talk' started by piphog, Mar 13, 2010.

  1. piphog

    piphog Private

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    I've been looking over some of these posts about people fuming over the proposed regulation to reduce leverage from 100:1 to 10:1.

    This reminds me of the furor over the regulation by CFTC through the NFA to ban offsetting ("hedging") positions in the same currency pair -- a practice that has zero benefit to traders and much benefit to brokers. Mathematically those concurrent offsetting positions were completely pointless and basically anyone who did that was such a hopeless amateur that they need the government to help them out anyway.

    But now we are on to this leverage issue. We all know 95% of traders or more lose net when they trade retail 100:1 forex. The only people benefiting from this ridiculous excessive leverage are the fraction of successful low-capital traders, and of course the brokers.

    The FOREX markets at 100:1 leverage at the retail level amount to a financial casino where volatile swings can either make or break your account. People arent trading in the interest of price discovery or hedging anymore -- its all about raw casino-like speculation which distorts the market.

    The only winners if we DONT pass this leverage restriction to 10:1 are the brokers, who lure the financially illiterate and inexperienced amateur traders with flashy ads on news and financial websites promising great possibilities of wealth creation. These same brokers who aid in the destruction of over 95% of small-time FOREX traders.

    Just food for thought.
     
  2. Ricex

    Ricex Sergeant

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  3. fxfrench

    fxfrench FXOpen AU Representative

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    Very well said. You can't jump in to the forex market and expect to make a profit with a bunch of downloaded indicators and a self taught methodology. You need to take a course. Even if it just a technical analysis course run by your local stock exchange.
     
  4. Pharaoh

    Pharaoh Colonel

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    Hedging for the sake of hedging is silly. On the other hand, being able to conduct short-term trades in the same account I'm taking long term trades in is a VERY useful tool. For those subject to panicked decisions, being able to hedge a trade gone wrong is a good way to allow a little time to contemplate the situation. You seem to have also forgotten that as part of the anti-hedging, FIFO rules have caused issues with setting SL and TP on a number of brokers. I guess you don't think having a stop loss is all that important now that Big Brother has protected you from the extreme danger of the totally optional choice of opening a hedged position. This is the equivalent of giving a child who is learning to ride a bike some knee pads, plus a helmet with spikes on the inside.

    Being limited to 10:1 prevents me from scaling into positions where I've already moved my SL well into profit and am only risking a part of the profit I've already secured. Heaven forbid I be able to keep adding to a good position on a strong trend. Oh wait - you also didn't mind that they took away SL.

    Take a look at other futures contracts. Many of them use leverage far in excess of 10:1, and have done so for far more years than we've been able to trade retail forex.

    Rather than put in silly regs like no hedging, no SL, and little leverage, the NFA and SEC would be better off requiring all new traders to take a simple computer-based class with a test where they have to calculate how much of their money they are risking on a single trade (hint - No SL = 100% risk of account balance, no matter what the leverage) as well as some other basic concepts of forex trading.
     
  5. hyper

    hyper Corporal

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    Leverage of 100 or more may sound like a lot, but currencies don't move as much as stocks or futures day to day percentage-wise.

    To me, higher leverage is safer, as it gives me a larger buffer against account stop out ("margin call"), allowing more room for the price to move back in my favored direction.
     
  6. Pharaoh

    Pharaoh Colonel

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    The sad part is that there are some real sensible regulations and the crazy regs look like an add on.

    The Anti-hedging/FIFO was tacked onto a regulation requiring "off quotes" cancellations to be done very quickly or not at all - no more finding out that your profit made over a span of days, weeks, or months all evaporated after a visit to the "compliance department" during the withdrawal process. The 10:1 was tacked onto regulations closing loopholes in registration and legal enforcement.

    I'm not sure what's up with this Jekyll and Hyde routine that the NFA and CFTC have been doing lately. It's like someone there works very hard to fix real issues and then some psycho goes in and slips in something to drive more and more accounts away from the USA.
     
  7. hyper

    hyper Corporal

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    Yes, the "Price Adjustments" rule was very much needed to curb abuse by brokers, claiming "off market orders" to wipe traders' profits and only returning the deposit. Here is an excerpt of the rule:

    Source: http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=2273

    If you come across any stories of brokers who wipe profits due to "off market trades" then those brokers should be avoided, as you simply never know whether they are going to wipe some or all of your profits when it comes time to withdraw, regardless of the strategy you trade.

    MaXeY on Forex Factory made a thread with a list of brokers who delete profits here: http://www.forexfactory.com/showthread.php?t=95864

    From what I've read on this forum, UFXBank and FIGfx are other brokers who fit into this category.
     
    #7 hyper, Mar 16, 2010
    Lasted edited by : Aug 15, 2015
  8. clem699

    clem699 Sergeant

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    I think the CFTC is only trying to fix a problem that does not exist.It is true that alot of in-experienced traders loose money by being carried away by trading with high leverage on high returns but i think new traders loose basically because of lack of education.The higher the leverage the better because it gives opportunities to test trading style with little funds and gradually,a reliable account is built with time.

    For me,this rule is only meant to make forex trading accessible only for the rich and sophisticated traders.
     
    #8 clem699, Mar 17, 2010
    Last edited: Mar 23, 2010
  9. Forexwatchman

    Forexwatchman Sergeant

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    I'm still amazed at how such a clear cut issue as this one still manages to confuse and then persuade less educated persons to vocalize their opinion in favor of this backwards and counterproductive regulation proposal. The 10:1 rule would not "protect" U.S. traders because U.S. traders would no longer hold U.S. brokerage accounts, THUS the CFTC would no longer be able to protect them from ANYTHING! They know that such leverage is ridiculous and that other markets, like the futures market, use much higher leverages than 10:1.Thier next step would then be to curb that ability to move your money into an offshore account as well. Their interests lie not in protecting you, but in furthering the interests of futures brokers. 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, it's spelled out for you in their own name! And there’s no denying that retail forex competes directly with their members’ business interests. The CFTC (Commodity Futures Trading Commission) is simply their enforcer.

    The solution to this problem is one of education, as I hope even you Piphog can agree with me on. Risk management and trading discipline are what I use every day to make money in this market, not casino odds and wild gambling tactics. Those same brokers that "lure" you in with slick advertizing (as opposed to what? generic and unnoticeable advertising) provide educational services, not to mention sites like my own and the many others that are out there for FREE! Dumb people making equally dumb financial decisions will not be solved through government, its personal decisions, personal will, willingness to learn before you trade real money. This regulation eliminates all of that here in the U.S. and all of the potential that this industry has by moving money to off shore brokers as common sense. Why would you trade with 10:1 leverage if 100:1 is still available? Please answer me that one Piphog.
     
  10. piphog

    piphog Private

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    I am going to ignore your original ad hominem in calling me uneducated on this. As someone who has worked in S&T for different investment banks for years now, and judging by your remarks, it is you who is the less educated one, not myself.

    Yes, futures trading has higher leverage. But you and Pharoah are conveniently ignoring the clearinghouse effect of futures trading that reduces counterparty risk and makes trading far more safe. The retail FOREX trading is done completely OTC, meaning the high leverage carries counterparty risk as there is no clearinghouse to necessarily balance out everything.

    I think its hilarious how it still escapes you, and how you find any way possible to try to explain away the fact that borrowing a ****load of money and trading with it is riskier than putting up more money and borrowing less money to trade with. As I already said in my original post, this isnt about money management. I suppose you wouldnt care if there were 1000:1 leverage since its all about money management, as you cliam.

    This is simply disingenuous at best. These tactics feed the brokers. The flashy ads that say "TRADE FOREX NOW LIKE A PRO BEEP BEEP YOU CAN BE RICH" is preferable for you apparently compared with a more professional ad. This isn't supposed to be a gambling market where cartoons lure you in to play, FOREX is not meant to be used as a casino but as a hedging and trade-use market.

    If you guys really like futures leverage so much, stop trading bull**** FX lots and move on to currency options/futures....play with the big boys instead of feeding the brokers who are screwing EVERYONE over by forcing higher leverage so people trade more and feed their coffers more.
     

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