Comment Text:
i0-001
COMMENT
CL-03224
From:
Sent:
To:
Subject:
Michael Gazzani
Saturday, January 23, 2010 11:07 AM
secretary
"Regulation of Retail Forex"
My broker has provided me with information regarding your proposed new
regulations concerning retail foreign currency transactions.
While I certainly agree with any regulations that protect traders from brokers that
do not meet ethical and financial standards (including insurance) which would
subject the trader to losses due to fraud by the broker. I believe that managed
accounts (similar to mutual fund accounts) should not be permitted to trading in
futures because the risks can outweigh the benefits to the customers that may
not be aware or knowledgeable of this type of trading.
I disagree with the proposed reduction of the 100:1 leverage limitation, to 10:1.
This reduction does not protect the trader from fraudulent brokers. I see it as a
greater opportunity for a fraudulent broker to gain access the larger account
deposits, since a trader must increase the account deposit by 10 times to
maintain the current level of trading. This essentially results as a penalty to the
trader, which would require larger amounts of cash to be on deposit with the
broker. A larger account balance exposes the trader to larger loss potential in a
volatile market or by fraud.
I believe the proposed regulations affecting leverage amounts to protect traders
because such transactions "CAN QUICKLY LEAD TO LARGE LOSSES" is
ridiculous. This reduces the proposed regulation to a monitoring device to
protect traders that DO NOT properly manage their accounts, or as a means of
protecting them from themselves The bottom line is that all traders would suffer
because of the incompetence of a few.
As a relatively newcomer to Forex trading, I quickly learned that the numerous
protections provided by my broker are for my benefit. As I have learned, due to
my aggressive style of trading, it is best for me to maintain a small cash balance
with the broker. In the event that the market has a quick turn against me, I know
that the worst case scenario is I can only lose the amount I have on deposit. In
reality, this would not happen because the broker would close my position (in
accordance with their margin requirements) before the account balance reaches
zero.
Maybe my broker is ahead of the curve in dealing with its customers. I have on
several occasions made bad trades that resulted in my losing sufficient funds toi0-001
COMMENT
CL-03224
prevent me from placing additional orders. My brokers always e-mails me prior
to this event actually occurring (or if they expect a big change to occur), so that I
can chose to let it happen or attempt to manage my account out of the situation.
If I lose my funds, it has nothing to do with the actions of the broker or because of
the leverage ratio. In fact, because of the leverage ratio, I am able to risk smaller
amounts of cash to achieve greater returns on my investment.
I only risk a small balance for trading because I enjoy following the Forex
markets and being an active trader. As a small trader, a reduction in the
leverage ratio would prevent me from remaining as an active trader, not willing to
risk 10 times more than I currently do. Since the beginning of December, I have
increased my account value from $500 to $1,200 (profits of $700) by properly
managing my trades as I have learned from prior experience. If the market were
to take a disastrous turn, my exposure remains at approximately $460 of the
$500 I started with. Your proposed regulation reducing the leverage ratio would
require that I maintain a $5,000 balance to achieve the same $700 account
increase, but with a much greater downside risk ($4,600). Alternatively, if my
trades were reduced to 1/10
th
of their current level, the $700 increase would only
be $70, which wouldn't even cover my data service feed for one month. Trading
at 1/10
th
of my current level most likely would not be acceptable to the broker
and it would not reward my efforts sufficiently for me to continue to trade.
Finally, I understand your desire to protect traders from themselves. Although I
can't speak for all brokers, I can say that my broker constantly reminds its traders
of the of the risks of trading in the Forex market and provides adequate notice of
potential volatile situations. Regulations governing how brokers practice are
necessary, which should not include further reduction of leverage ratios.
Reduction of leverage ratios will force millions of traders out of the market and
potentially affect the market as a whole.
MichaelJ. Gazzani
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