Comment Text:
i0-001
COMMENT
CL-01251
From:
Sent:
To:
Subject:
[email protected]
Wednesday, January 20, 2010 10:00 PM
secretary
Proposed regulation of the retail forex market
Ref no: RIN 3038-AC61
TO Whom it May Concern:
I am a retail forex trader, who has recently learned of the CTFC's proposed regulation of
leverage available by over the counter currency brokerages to customers.
I would like !o opine that while the current proposal of 10:1 is considerably more reasonable
than FINRA s earlier proposal of 1.6:1 it is still a highly restrictive amount. 10:1 leverage is
very restr ct ve for traders who have tt e cap ta to trade w th.
Most profitable traders risk no more than 2-5% of their account equity per trade. Most short
term currency strategies require a stop loss of 20 to 40 pips while longer term strategies can
require up to 100 pips and even more. Restricting leverage to 10:1 would require tha[a trader
with a long term strategy using mini lots have an account of $5000-$10,000 in size, or switch to
a shorter term strategy. Short term strategies, in addition to requiring more screen time, are
more difficult to profit-~bly trade especially for beginning traders. This would put traders with
little capital in a very difficult position.
It is possible for traders to use micro and nano lot brokers, but such brokers are dealer desk
operated and can take positions against their clients. Such broker arrangements are not
su tab e for a traders.
It is true that many Forex brokerages carelessly advertise the profitability of currency trading. If
the CTFC is interested in protecting investors ~t would be wiser to targetthe deceptive
practices of brokerages that make such advertisement claims as "The Euro is easy to trade".
There are already SEC regulations in place that regulate the promotional activities of
registered investment adwsers. Such ~deas shouldbe implemented towards the deceptive
advertisement practices of certain currency brokerages which push naive unsophisticated
investors into believing that currency trading is an easy profession. Likewise stricter rules
should be implemented towards purveyors of "currency trading systems" which have a
questionable reputation and do not often deliver what their advertisements promise.
One other practice that the CTFC can make mandatory is for brokerages to disclose more
clearly the dangers of the careless use of leverage perhaps requiring an illustration of this with
live examples (i.e. account equity risked, possible outcomes over x amount of failed trades),
not merely state that leverage "increases risk of loss as well as profits".
Finally, the CTFC can make a more effective effort to regulate "dealer desk" brokerages who
take positions against their customers, and may use artificial means of manipulating price
information to do so.
Regulating leverage is probably the least effective method of protecting investors from
careless losses. It may actually encourage traders with less risk capital to take greater risks, it
will hurt professional and responsible tra;ders and it will certainly encourage a ~ght from CTFC
regulated currency brokerages. The net effect may be opposite of what is desired. Worst of all
it sets a precedent that leverage is the main cause of account destruction which in my opinion
s very untrue.
Thank you for taking my opinion into consideration.
- George Selinsky
Currency Trader
