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Comment for Proposed Rule 75 FR 3281

  • From: Jeff Simberg

    Comment No: 137
    Date: 1/15/2010

    Comment Text:

    Friday, January 15, 2010 10:30 PM
    RE: NEW proposal for 10:1 leverage for forex
    Please don't make this a Law it's ridiculous
    Above, I said that too much safety is a bad thing. Hidden away amongst some wonderful regulations to help
    protect people against many of the more common scams is a little surprise that could spell the end of much retail
    forex trading at US brokerages.
    The plan is to set the maximum leverage for US retail forex to 10:1. Just so that we are clear that this is not me
    slipping a digit, that's Ten to One.
    I love risk management. I can take make the worst trading decisions in the world and only lose money at an
    incredibly slow pace. Risk management is a good thing, but this is ridiculous.
    Just like NFA's anti-hedging
    and FIFO rules that interfere with stops, this is stripping away the right to make
    one's own informed (or uninformed) decisions. Some brokers who know that their customers will take all their
    money out of the USA have found limited ways around the Hedging and FIFO restrictions, but there won't be a
    way around this. Once again, in order to protect us, the government is taking away all the sharp tools in the shop
    so that children can play safely around the power equipment.
    This will provide some limited protection foolish newbies who have been known to instantly wipe out their life
    savings with a mouseclick, but the world can't be designed to protect every person from every possible mistake.
    The government's regulatory role in the forex market should be to protect us from fiscal fraud, not from being able
    to click buy or sell with some leverage.
    Let's do some math. Suppose you have just over $10,000 in your account. Let's ignore spread for a moment to
    simplify the math. Under 10:1, you can open only 1 lot. That's $100,000 of an xxxUSD pair. If it goes a few pips
    against you, then there's not enough money in your account and your broker could give you a margin call. If it
    goes 50 pips in your favor and you move your SL to breakeven (thus, your current risk is only your profit and
    nothing else assuming your broker is good at honoring ~) or even to +10 pips (thus locking in $100 profit and
    having your only risk be $400 of your profit), you won't have enough money to open a second lot (or even a single
    minilot) if you want to scale into a good position.
    Using tight risk management as I've described elsewhere (1% of account balance) and a 20 pip stop, you should
    be able to place a single trade for 5 minilots in a $10,000 account. Under 10:1, you would be able to open (at
    most) a second position. Even if you have profit locked in, you wouldn't be able to open a third position for this
    In my opinion, this restriction is both stupid and insane. I wonder what those big brokers that will have less local
    competition due to the capital requirements will think when even more forex traders move their money offshore.
    How many US jobs will this cost if it is implemented?
    What's next? 10:1 leverage on all other commodities?
    What to do
    Jeff Simberg