Folks the conversation is getting side tracked. We need to defeat this rule. You can do so by emailing secretary@cftc.gov and protesting 10% margin. Check out the comments to date: http://www.cftc.gov/lawandregulation/federalregister/federalregistercomments/2010/10-001.html
I actually vote for the 10:1 solution!!! If you trade instruments in aggregate in an amount that exceeds 10 times your account then you are hopelessly over-leveraged, period. People can argue back and forth as much as they want fact is 95% of traders fail and lose money. I have not seen studies but I am willing to wager a sizable amount that the winning 5% are on average way less leveraged than the losing 95% of traders, or should we call most of them housewives and "i dont know what to do after college" kids? I understand some treat trading as a gamble and exiting game, and they dont want this taken away from them. However, sometimes you gotta protect the idiots from harming themselves thats why a lot of them are kept in mental institutions. Seriously, I could not be happier if this actually went into effect, finally all those ridiculous bucket shops whose only life existence was to take the fish, even lower than them, to the cleaners will now need to close door themselves. I salute to that!!!
Asiaprop just exclaimed the mantra of the nanny state. While we're at it why don't we just shut down every fast food restaurant in America since "the idiots" are continually harming themselves eating Big Macs. Seriously asiaprop, why don't you go to North Korea where your philosophy is embraced by Dear Leader.
PLS....everyone take 2minutes out your day and send an e-mail in protest to this rule. As this ruling does not makes sense at all, you can get more leverage in the futures markets......also this rule will tie up a lot of your capital which could be earning interest somewhere else, or could serve as margin when you are trading different markets. This rule will limit your ability to create a diverse portfolio with limited capital as well. The issue is not leverage but risk management and it is an issue that these guys do not seem to understand. Even 1000:1 leverage is not an issue, if u want to risk 1% of your portfolio you can but just with less money down, everything averages out. Its different when some newbe comes and actually leverages his account by 100 or 1000 to 1, that is a disaster. The high leverage is possible because of the low trade minimums, if there where high trade minimus then leverage would be an issue but people can trade for $1 now. Therefore they should instead advocate for education of the application of leverage as most people do not know how to use it! If this rule passes fx traders will have to jump to prop houses to get leverage and that would not be good as you can get that now with no intermediary.
That's a little different. Those idiots are raising healthcare costs for everyone. Blowing out your account only harms yourself.
That is a fairly interesting take on the matter and I appreciate the thought that went into it. It has all the ear-markings of truth: Logic, consistency, plausibility and structure. So, the question that begs to be answered with respect to your very nice analysis is this: Who truly runs the CFTC? The CFTC? Or, the NFA? Keep in mind, the plug would only get pulled on U.S. traders operating through U.S. based firms. Like someone just said, if I switch to a foreign solid and trade through them, I'm no longer bound by the CFTC ruling, if it becomes a reality. But, your point about 6E going through the roof, is a very plausible conspiracy theory and it is one that I don't mind saying that I might subscribe to.
Really? What exactly does that mean - "over-leveraged?" Can you define what being "over-leveraged" looks like and why one definition of being "over-leveraged" can and should be applied to all traders? LOL! They are losing money because they have not yet learned how to sustain long-term profitability in one of the markets that is the easiest to trade. I did not say An Easy Market TO Trade. I said, ONE of the easiest markets to trade. Look, I can enter a derivative NOC contract (Option for Northrop Grumman) deep ITM at say $4.75 and be right on the direction of the market over the next 6.5 hours of trading and make a profit. But, if I enter that same NOC derivative contract deep OTM at say $0.25 and be right on the direction of the market over the next 6.5 hours of trading, I can make several hundred percent in net gains in the same time (depending on where the Greeks happen to be positioned at the time of entry). So, whether or not I gain or lose money trading leveraged stock options, is yes, a function of the leverage being offered, but it is primarily a function of whether or not I know how to position my capital to take advantage of movements in the market, whether they go against my position or with my theoretical projection. The difference in the currency markets is the SPEED at which things move. Once you get accustomed to the speed and you study the data of the pair or spot you are trading, the leverage becomes your friend, just like the trend. Apply good money management, know where and WHY to use a Stop Order, what Limit Level to target and WHY (answer is contained in the data of the pair or spot) and you can accelerate your net gains far in excess of what you can do for the same dollar traded in the equity options business. Why? Because, not only can the Greeks conspire against you during the trade, but your underlying stock is subject to taking hits from three (3) additional and unexpected sources: 1) News relative to the underlying company offering the underlying stock and 2) News relative to the Equities Markets in general and 3) An Exchange that does not want to cooperate with the theoretical direction of your trade. Combine the Greeks with these three heavy hitters and you get ultimate instability in trade accuracy over time, such that your ability to trade with accuracy using stock options is less that what it would be trading straight-up spot FX or pairs. Why? Because one thing above all else moves a currency: 1) Interest Rates. Thus, all you have to learn how to do, is realize how the current day's or week's Economic Reports will affect the sentiment on how the Central Bank will handle rates in its next decision. And, that's just how simple it is on the Fundamental side of trading the currency markets, it gets a whole lot easier when you become a Technical trader of the currency markets to conditionally extract a specific number of pips from the market on a routine basis without all the fear and loathing about News, Greeks, where the NASDAQ or the NYSE might go and the like. The currency markets, more than any other that I've traded, is all about finding YOUR niche and sticking to it. This is a Technical traders delight where leverage is the name of the game - when you finally find out what you are doing here. Show me a currency market trader that is over-leveraged and I'll show you a trader that has not yet found out the reason why they are trading currencies in the first place. Learn the behavior of your pair - it is just that simple. Know what it likes to respond to and what it does not like to respond to. Each one has an attitude and a disposition. Learn your pair's personality. If you don't think or know that they each have attitudes, dispositions and personalities, then you don't yet understand currency trading. Take your pair out to dinner, to family reunions and bring it home to meet Mother. Better yet, marry your pair and sleep with it every single night. How else will you know when your pair is sick, has a headache, has back-pain, feeling a little under the weather - or - feels good, feels like dancing, wants to hit the street in a Veyron or tear up the highways at 254 mph. You need to know when your pair is sitting on the launch pad and ready to blast into high earth orbit and you need to know when you pair wants to go to bed and sleep. When you pair says:; "Not to night honey." Why force the issue? It makes no sense. Get to know your pair - THAT is the answer, not derailing leverage and not whining about the 95% who fail to get to know their pair. Show me somebody serious about trading the currency markets and that has failed, and I'll show you somebody that never truly consummated their relationship to their pair. Get to know her and what SHE likes - NOT what YOU WANT to force her to DO! She does not like being FORCE into doing anything, just like a real Woman. Get to know her and when SHE gets ready to MOVE, then YOU move with her. When you really get to know her, you will be able to properly anticipate when she is about to make that move, BEFORE it happens. This takes time and if you don't spend the time to understand this, then you should not blame the matter on leverage. Now, get out there and build a real lasting relationship with your Woman! Good marriages take work. Lasting marriages take UNDERSTANDING and COMMITMENT. Understand AND commit to learning your pair and she will reward you.
Explain to me this, There are two traders both with $10,000 accounts trader a is leveraged at 100:1 and trader b is at 200:1. Both traders target 100pips and both limit there risk to 2% total account size. Trader a buys 1 lot with a 20 pip stop loss trader b buys 1 lot with a 10 pip stop loss. The position goes against both and they are stopped out. Trader a at 100:1 with 1 lot lost 20 pips at $10 per pip gives him $200 of his total account. Trader b leveraged at 200:1 with 1 lot lost 10 pips at $20 per pip gives him $200 of his total account. Both traders are thus able to suffer 50 losses prior to there accounts being at 0. For arguments sake lets assume that the spread is included in the SL to account for the overall risk. How is the trader with more leverage risking more? Also please do not try to ignor the question by saying that no one trades with 10 and 20 pip stop losses as this can be extended to .10 lots and 100 and 200 stop loss levels. I would also like to make note that when the financial crises hit many people who were invested in the safe stock market lost more then 2% of there accounts, mind you they weren't leveraged at all but they didnt understand the risk. That is why 95% of traders fail, they believe that they can open a position and use no or a very wide stop loss and when it gets hit there accounts are down 25% and they complain. I did the same thing, luckily I didnt blow my account and broke even, then went to demo some more.
I trade listed options you moron, where do I trade leverage beyond what is set by the exchanges? BTW, with prop firm I never meant shady outlets populated by guys with coffee stained shirts and slippers running around the office and behaving they are gods because they may have scored 500k in profits one year. Maybe you misunderstood....;-)