Comment Text:
i0-001
COMMENT
CL-06231
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Subject:
Clifton Thomas
Friday, March 5, 2010 116 PM
secretary
Propose margin legislation
I am responding in regards to the proposed legislation to reduce
margin to 10 to 1. I feel this is a groos overreaction based on the
financial crisis of 2008. Based on my experience the leverage that is
extended to the average investror can be as high as 700 to 1. This
allows the smaal investor to control positions normally only available
to institutions. Personall this has allowed me to reap gains purely
based on this fact. Just to preface I have 12 years experience as
series 7 licensed broker, and one of the pet peeves I have is the
public perception of options. This ties in directly with the Fx
markets because they both deal with leverage. For example you can buy
100 shares of caterpillar stock for an outlay of $6000 or you can buy
an option for a fraction of that. Yes the downside is that the option
can expire and can loose % 100 of your money but lets look at that in
context: 1. $6000 in CAT stock @ %10 loss is a $600 benefit. 2. $500
in CAT option @ %100 loss is a $600 loss. This is the new math where a
%100 loss is better than %10 loss. Let us go back to Fx. Normally an
account with 400:1 leverage can trade 50,000 worth of currency only
needing $125 as margin and with careful money management stops a
trader can make substantial gains trading 50k of currency. Also most
firms have implementet strict margin call rules with result in
customers accounts seldom going into a negative or debit balance. If
the margin is brought down to 10:1 a trader will have to put down 40x
as much capital to trade the same 50k. And as a general that applies
to trading as well as the Casino, if your playing with $500 you can
loose it all just as easily if you bring $20,000to the table. When
you implement the new rules you encourage people to bring more money
to the table and human nature dictates that you will trade differently
with $20,000 as opposed to $500.
In conclusion in effort to curtail losses to traders you will
obtain the antithesis. This is the case where the cure is worse than
the disease. If the CFTC implements the new lower margin restrictions
the side effects will be: 1. Traders will have to bring more money to
their accounts thus putting the extra capital at risk, 2. Penalizing
the vast amount of traders that benefit from the current margin
available,
3. Affecting the Firms' bottom line because of the
decrease in trading that will likely occur due to decrease in leverage.
My solution: leave the leverage the way it is( I even prefer the
increased leverage before the first leverage decrease). Instead of
changing the margin requirements. Focus more on the education of
margin and the risk involved and stress the fact that the money in
your account can be wiped out very quickly if over leveraging you
accounts.
Please take my opinion in context. Also take into
cobsideration my fiinancial background as a stockbroker. I strongly
believe that the right path is the one we're already on, all we need
to do is add a speed bump or two not break up the road.
Thanks,
Clifton ThomasSent from my iPhone
i0-001
COMMENT
CL-06231
