Comment Text:
i0-001
COMMENT
CL-05349
From:
Sent:
To:
Subject:
dan
price
Friday, February 12, 2010 6:57 PM
secretary
Regulation of Retail Forex
RIN 3038-AC61
I am writing in opposition to a 10:1 leverage limit for all retail investors. I am not against the other proposed rules such as
registration and capital requirements.
P
art
of the benefits of the internet is to allow retail investors the same
access to markets as the big players. Certainly you will hear from
large players who engage in high leverage for their firm, but have
figured out it will be better for their bottom line if small players to
become part of the club. But will you hear from small retail traders
who are not hurt by the current rule and use them to their advantage?
I
write modestly from the perspective of one of these small traders who
understands that we can buy options. However if I place a currency trade I can place a limit trade and I do not have to pay the
guaranteed
profit to my dealer. He only makes money if the market wiggles. This
way I am making the markets work for me, not solely my dealer. This is one
reason current options trading firms will want to have you limit the leverage for Forex. The other reasons
is the insane profits involved being the house and creating options out
of thin air.
I write asking you to think this through from the
perspective of a small investor who may not be protected by the 10:1
rule. Would it be reasonable that a person who has placed a certain
number of trades or certain number of years? or certain size of
account? that would not be protected by a 10:1 rule? Or would some type
of very extensive education requirement help? Not the boilerplate and
quick weekend seminars, but possibly some accredited university courses
that included tests, labs etc.?
I am merely asking you overall
to think about this from a perspective of someone who may not be harmed
if they were given equal access to markets as Goldman Sachs,
AIG or Warren Buffet. There must be a reasonable way for a small
businessman(woman) to open a small fledgling trading business trading
their own account and make some money for the dinner table. I do fear
that the 10:1 rule is intended to stop people from doing this or to
force them to buy expensive options in the process.
I wish to further point out how the options/stock marketplaces are not
protecting retail traders and are enriching wholesale traders or marketi0-001
COMMENT
CL-05349
makers.
I recognize in this discussion that if the
bar to achieve professional versus retail trader status ~vere to be set
reasonable that the comments belo~v ~vould become mute. I understand that
there ~vill be ~vide divergence of opinion on ~vhat a 'retail' versus a
professional trader may be. Ho~vever I think that considering the risk
of the Forex market and the potential re~vards to our country of having
capable people play this market that ~ve should consider this point very
carefully. Afterall retail traders that make money also pay taxes ... So for the treasury ~ve should promote 500:1 leverage.
I
am not intending to insult you ~vith basic information. Ho~vever I ~vish
to compare current Forex markets ~vith stocks in the illustration. I
~vill for the moment not address options ~vhich by the ~vay have higher transaction costs than stocks.
Stock
investors must contend ~vith t~vo elements of cost. And one element of
capital utilization. The costs are commissions and spreads. Commissions
are paid by options traders, stock investors and futures traders, but
not Forex traders. Spreads are also a cost and are set by the market makers and in cases of electronic trading platforms in
recent years set by those ~vith advance (mili-second) kno~vledge of market positions. 'Retail Traders' (or shall ~ve call them
sheep) are stuck ~vith paying these costs in advance of any order.
Forex
traders ho~vever only needs to consider spreads. Simply open up t~vo
~vebsites simultaneously and a reasonable approximate of spreads can be
estimated. That is a 'retail' trader can easily compare these prices.
This same retail trader is only hit ~vith this one price, not t~vo
prices, that of commissions and spreads. (if you ~vere to use this same
test in stocks it ~vould not hold as ~vell) A Forex trader can
additionally have the market pay the spreads by setting limit orders.
Forex traders also have access to high amounts of leverage. Leverage that I employ to provide protection of my interests.
That is I use
leverage as a means to keep me in the game. I typically try to position
no more than 10% of my portfolio ~vhile maintaining the other 90% as
do~vnside protection to take care of market ~viggles. To do this ~vith the
proposed 'retail' protection limit of 10:1 ~vould limit my gains to the
point that I ~vould not be able to 'play the game' anymore. It ~vould not
be a problem for me if the rule ~vas that I had 100:1 leverage, but
could only initiate trades at 10:1 leverage. It ~vould also not be a
problem if the house guaranteed that I could not loose any more than is
in my account.
Options costs are even greater than stocks costs.
Options investment for retail traders involve commissions, spreads and
options interest. Not only are there three ~vays to loose money there
are three ~vays for market makers to make hideous profits from options.
Is it not surprising that the large trading houses are arguing thati0-001
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CL-05349
they are 'protecting' the 'retail' investor by forcing them to options?
What
current proposed rules to limit low cost Forex markets to 10:1 leverage
and not limit options leverages are going to do is to drive traders
from a system that has one cost to that of a system that has 3 costs.
Now
any small businessman knows that to watch and manage one cost is much
easier than managing 3 costs. So what about a system that forces 3
costs on individual traders versus a system that used only one cost?
Consider that a trader may be marginally profitable with 3 costs to
bear, maybe they make a killing when only considering 1 cost. Might
this trader also pay more US taxes?
Ever wonder why the allure
of Forex? I suggest it is not just the leverage, but it is the lower
cost structure. Not to say that leverage is not a great equalizer for
the individual versus the trading houses.
I also wish to point
out that most of the calls for 'protection' of the individual trader
will come from the 'expert trading' houses which by the way loose out
when an individual investor decides to use Forex at the exclusion of
stock or futures investments. (Investments that are so layered with
costs that individual traders are almost completely guaranteed to loose
when day trading anyway.)
I also wish to point out that these large institutions will point out now low currency options costs are. Will these options be so
low priced if 10:1 limits are imposed?
If this rule goes into effect I will have to seriously consider renouncing my citizenship in order to pursue my profession. Not
a pleasant thought but the thought that I would have to live life without my primary income is not a contemplation I wish to
undertake.
Dan Price
