Comment Text:
i0-001
COMMENT
CL-05316
From:
Sent:
To:
Cc:
Subject:
shailesh dg
Thursday, February 11, 2010 1:45 AM
secretary
[email protected]
Regulation of Retail Forex
Subject: ID number RIN 3038-AC61
Hello,
I appreciate your zeal to provide good regulation in the Retail Forex market from the point of view of
risk involved. But, I have concerns regarding the guideline to reduce the leverage to 10:1. At present, the
blood of the forex market is the high liquidity present in a currency pair. By reducing the leverage ratio
to 10:1, the liquidity in the currency pair is going to dry down, thereby increasing the risk involved in
forex trading exponentially. The presence of a Very High Risk product in the financial market might
lead to many disastrous situation in the future. Below are my suggestions alternate to the reduction in
leverage ratio.
My suggestions:
1. Instead of modifying the leverage ratio for a currency pair, you can stipulate the allowed margin
percentage to 50% of the Account balance to leverage. For example, If one has 5005 balance in his forex
trading account, he/she should be allowed to undertake trade positions by leveraging only 50% of the
balance, i.e., 2505. This way, in the present scenario, one would be able to take maximum of 2 trade
positions in EUR/USD (lposition size=10000$) by providing margin of 1005 for each position. The
remaining 3005 would become usefull during high market swings to buffer the losses for considerable
period. By this, you would be regulating the retail from taking more risk without affecting the present
Forex market environment.
2. Instead of applying a Static leverage ratio across the forex market, a Differential leverage ratio based
on the risk undertaken would be of great use. For example: If one has an open trade position in
EUR/USD(lposition size = 100005), the leverage ratio can be 100:1. If the same person takes another
position in EUR/USD(lposition size = 100005), the leverage ratio for both the positions can be reduced
to 95:1. Like this, more the risk undertaken, less the leverage ratio can become. This way, you can
regulate the herd mentality of the retail from taking more risk based trades, without drying out the
overall forex market liquidity. This would also make the retail realize about the risk undertaken.
Forex trading can result in a very good profit when managed with less risk/reward ratio. Forex trading is
a boon to many of the Retail traders, as it forms another source of income apart from the main
profession. So, please do not kill an another source of income for the retail in the present economic
downturn.
Regards,
Swamy Shylesh
The INTERNET now has a personality. YOURS!
See your Yahoo! Homepage.
