Comment Text:
i0-001
COMMENT
CL-01559
From:
Sent:
To:
Subject:
RUBEN ALDAY IRURE < [email protected]>
Thursday, January 21, 2010 5:21 AM
secreta ry < secreta ry@ C FTC. g ov >
Regulation of Retail Forex (RIN 3038-AC61)
(RIN 3038-AC61)
Dear Secretary of the CFTC,
I am ~vriting to express my dismay at the proposed regulation contained in the Food, Conservation, and Energy Act of 2008,
also kno~v as the "Farm Bill" to limit leverage on retail forex accounts to a 10:1 maximum level. I strongly urge you not to
impose these ne~v stringent regulations on currency futures brokers located in the United States.
I understand that the intent of the ne~v regulations is to protect the average retail forex trader from themselves as ~vell as to
send a strong message to Forex brokers that unscrupulous and unfair practices ~vill not be tolerated. I applaud the spirit in
~vhich these regulations ~vere ~vritten. The small, individual retail trader is at the mercy of the broker. There have been many
documented instances of fraud and abuse. I applaud and support the proposed ne~v rules by the CFTC:
o To clarify the scope of the CFTC's anti-fraud authority ~vith respect to retail off-
exchange foreign currency
transactions;
o To provide the CFTC ~vith the authority to register entities ~vishing to serve as counterparties to retail forex
transactions as ~vell as those ~vho solicit orders, exercise discretionary trading authority and operate pools ~vith respect to
retail off-exchange foreign currency transactions; and
o To mandate minimum capital requirements for entities serving as counterparties to such transactions.
The ne~v rule that requires FCMs (Futures Commodity Merchants) and RFEDs (Retail Foreign Exchange Dealers) to
maintain a net capital of $20 million plus 5% of outstanding trade liabilities is, on the surface a good thing. This rule ~vill
have the effect though of limiting open competition by requiring ne~v brokers to raise $20 million to begin to solicit new
customers. Many innovations to~vard clarity and openness by some of the ne~vest brokers ~vould be stifled. As an example,
tight spreads and straight through order processing ~vould not be allo~ved to come to market. I ~vould propose instead a form
of scaling in of the capital requirements as a ne~v firm's client base expands.
The proposed ne~v leverage rule of 10:1 is misguided and very damaging to the average small trader, ho~vever. In now
maxing out 10:1 on the broker side ~vill, I ~vorry, subject me to margin calls much more readily. The prudent trader should
only risk 1% -2% on any given position of their net capital. On a $10,000 trading account, assuming a generous 50 pip stop
loss and 2% risk, a trader should not prudently risk more than 4 mini-lots. As the trade continues in one's favor, additional
positions are then taken as "scale-ins" in order to squeeze more out of a given move. A 10:1 leverage limit ~vill not allow
additional scale-ins beyond 1 additional position of 4 mini lots before the trader is subject to a margin call should the trade
begin to move against the trader, even slightly. A more generous 100:1 leverage limit allo~vs for temporary dra~v do~vns
necessary to see a trade through to its successful conclusion.
The likely effect of this ne~v regulation ~vill be that U.S. traders ~vill find offshore brokers to trade ~vith that are not subject to
these regulations. We have already seen this happening ~vith the NFA's anti-hedging rule and FIFO rules implemented last
summer. Moving capital a~vay from our shores surely has the effect of costing jobs in the U.S. as ~vell as adding to the current
destructive trade imbalance.
Sincerely,
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