FINRA moves forward to limit Forex leverage

Discussion in 'Forex' started by ozzymandius, Jun 7, 2009.

  1. Seems that FINRA is serious about reducing leverage for retail forex brokers all the way down to 1.5:1!

    In January they proposed the rule, and received 108 comments (107 of which were AGAINST the proposal). Now they have filed the rule and are awaiting approval:

    This is ridiculous. Does anyone else think so?

    Under this proposed rule, you would need to put up $66,666 to trade a single $100k lot!

    Unfortunately, my broker of choice IB, for which I spent the whole of last year developing my autotrading platform, is regulated by FINRA. I just hope that if this rule is actually approved, that IB is able to quickly spin off their Forex biz into another entity that comes under NFA regulation, instead of FINRA.
  2. pqt


    And what makes you think the NFA wouldn't adopt similar measures in the future, in view of some moronic decisions they have made lately?
  3. The NFA could very well come up with something similar. But right now, they haven't.

    Guess the powers-that-be only want large institutional traders, and banks to have access to high leverage.
  4. Completely ridiculous for a fungible globally-traded product. This will just cause an exodus from US-based FX shops to overseas brokers (mainly the UK) and the CME FX futures (both of which would be delighted to see this get passed).
  5. Anyone familiar with the specifics of this? This is quite significant if it gets approved.
    I briefly skimmed their document and it appears they gave zero credence to anything anyone had to say about this ridiculous rule. It is rather shocking how condescending they are to anyone who is stupid enough to disagree with them. It seems this would not affect currency futures at the CME, which allow a substantial amount of leverage, so what is the point of this rule? You can use leverage and speculation in currency futures but not spot forex? Anyone have any evidence that the CME is behind this?

    You can tell by the way that FINRA worded their document that they believe they are God and anyone who goes against them is evil and cannot have a valid opinion. They state quite clearly that leverage and speculation (the life blood of every professional trader) are wrong and should be eliminated. How long before they outlaw the next thing?
  6. I am not familiar with CME FX futures, as I have only traded spot FX to date.

    But does IB allow us to trade CME FX futures?

    What is the approximate leverage?

    And what is a good data source for these, going back 5 years or so?

    Any pointers much appreciated.
  7. hoffmanw


    It might be a disaster for US firms, not retailed traders. If it is passed, the SEC will have the power to regulate that with US firms. US Forex retailed traders simply open up accounts in another country.
    It didn't say US citizens are prohibited to use more than 1.5 leverage on forex. Rather it said prohibiting US firms from granting more than 1.5 leverage to their customers.
  8. If you read it now and when it came out in Januray, it is for FINRA firms or firms that are broker dealers. So the top NFA regulated firms are not included in this since they are not a b/d with FINRA. IB is finra, but places like Oanda , gft FXCM etc are NFA firms. Also NFA was looking to decrease leverage as well if you look to their website, but down to 100-1 they wanted to stop the firms from offering the 400-1 Leverage. They want to do this as to dont let the little man hang themselves to much but also allow for better global competition so we dont flock overseas. So for the people that trade retail with most top nfa regulated firms this has no bearing. Some firms like IB and I think TD Ameritrade who were trying to enter the FX are getting the 1.5.1 margin regulation.
  9. Trade the CME Mini-FX contracts and call it a day.
    Dealing with these FX bucket shops is a losing game anyway.
    #10     Jun 7, 2009