Comment Text:
i0-001
COMMENT
CL-03506
From:
Sent:
To:
Subject:
Thomas Moore
Sunday, January 24, 2010 11:40 AM
secretary
Regulation of Retail Forex
I strongly oppose the leverage of 10:1 that you wish to force on investors. I believe that such force is
against the very act of capitalism and more in line with tyranny like that of King George III. Leverage is
simply a tool that enables a trader to enter a trade easier and not have to worry about being margin called
if the trade goes against the trader a small amount. Proper risk management is the key to any portfolio.
For example,
1. lets suppose trader
John
(who only has a 8k account) is an educated well informed trader who has
studied and he enters a trade purchasing a standard lot contract of 100,000 amount using 100:1 leverage
but puts a stop loss order in place to limit risk at 30 pips and a limit order in place to secure profit at 100
pips. Basically he's risking $200 and looking to make $800. A 1:4 risk: reward ratio. So John was
risking Let's say he was trading the eur/usd pair. So the margin required to enter the trade for John
would be about $1,420.
John risked 2.5% of his account looking to go up
10%
2. Okay lets see trader Wade is using 10:1 leverage and has the large 30k account that you wish people
to have to be able to trade forex since you wanna get rid of the little guy. And let's suppose that Wade
does not employ proper risk management (once again the key to decreasing exposure to risk) and he
buys a standard lot contract using a margin of $14,200 about for the eur/usd. Now Wade decides in this
tradethat he's not going to use a stop loss and buys the eur/usd at 1.50 because he's been reading stocks
analysts comments ramping up on the gloom and doom of the dollar.
So
Wade is targeting
1.52 looking to make $2,000. The next week the market goes in Wade's favor up
to 1.51 and then the week after drops to 1.42.
Wade hasn't employed a stop loss because he's not
educated but has 30k you seek and is still sure of the dollars impending doom because of the
analysts he hears on cnbc and reads about the impending dollar doom.
AT THIS POINT WADE IS NEGATIVE $8,000.
So Wade risked so far 26.6% of his account with a
risk: reward ratio of 4:1. And the market could continue to fall blowing up his account or Wade may
continue adding long Euro positions.
Its all about risk managment. Leverage is a tool!!!
