Comment Text:
i0-001
COMMENT
CL-03346
From:
Sent:
To:
Subject:
Curtis Croft
Saturday, January 23, 2010 4:57 PM
secreta ry < secretary@ C FTC. g ov >
Regulation of Retail Forex
Dear Mr. Stawick:
I am writing in reference to pending regulation changes for retail accounts trading
currencies (RIN 3038-AC61). I use the foreign exchange market to hedge currency exposure which
I incur with the purchase of foreign stocks and bonds. A reduction in the available leverage in forex
accounts from 100:1 to 10:1 would significantly increase capital requirements for these accounts to
attain the same level of currency hedging. This would seriously reduce my ability to attain this
hedge or would require additional capital to be taken from the portfolios that I am trying to protect.
I assume that this leverage restriction is being proposed because of the serious
problems that many Wall Street banks incurred by using high leverage ratios. High leverage can
cause severe financial damage in any market if improperly used. However, there are huge
differences in market profiles, especially regarding liquidity. For example, if I choose to invest in
credit default swaps on the soverign debt of Abu Dhabi, there may be only 9 other people in the
world on the other side of the trade, and we are all looking at the same information to make
investment decisions. If I decide that the time is right to sell these instruments, chances are that
the other guys just made the same decision, and my investments are suddenly worthless in the
short run. Leverage just makes this situation more painful.
In the foreign exchange markets millions of investors are making decisions every
minute. All of my positions can be liquidated in a nano-second. There is no more risk to me at
100:1 leverage than at 10:1 as long as I understand the potential impact on my account values
from currency price movements and set my contract position level accordingly. If the investing
public is experiencing difficulty with these accounts as they are currently structured, I recommend
that the CFTC require more educational materials be made available to assist investors in
understanding how to use leverage properly rather than penalize the entire marketplace to protect
the ill-informed. Thank you.
Regards,
Curtis Croft
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