Comment Text:
i0-001
COMMENT
CL-05396
From:
Sent:
To:
Subject:
dan price
Tuesday, February 16, 2010 12:52 AM
secretary
Re: Regulation of Retail Forex
I wish to add to this letter of comment.
It is in relation to my assertion that our financial services industry has engaged in practices to enrich themselves with hideous
profits at the expense of their customers. I contend the reason financial services companies are so opposed to 100:1 leverage
is that the average person can figure out that they will pay less to the market makers and their brokers in the pursuit of gains.
Forex investment competes with all other products offered by financial services industries, so they are keen on limiting
individual access to these markets.
These same companies are engaged in writing options which 'protect' the individual investor against the ravages of the
market. Offering this service comes at a fee (three fees instead of one). Have you heard of the 'commonplace' wall street
adage that if dealer is to sell a far out of the money put the dealers simply goes buy a mercedes? Why? Because the profits
from constructing these no risk (no risk to the underwriter) instruments is monumental. (all risk of options is borne by the
market) And to create more, simply press your computer key ... Simple no cost for product, no risk and unlimited sales.
Theoretically unlimited profits and no work whatsoever other than programming the computer in the first place. A socialist
might say that creation of options should be a government function.
Well one could simply say competition will keep prices in line. However these same firms are set on limiting the access of
companies to write options in an effort to 'protect' the system from risks. I wonder of the bar is not set sufficiently high that
few firms can compete, then if only a few firms can compete, is there competition? Or are firms who do not tow the pricing
line punished somehow?
I do not know the answers to these questions. I also do not know if these are valid questions. I do know that I am more than a
little bit jaded about how the systems are set up to guarantee high profits to financial 'service' firms while individual investors
are saddled with high fees.
Ever wonder that investors may flock to Forex not just because the leverage offers the potential for real profits from trading
but that the structure of the marketplace allows very low cost transactions? Now the very firms that benefit the most from
onerous regulation of Forex markets are at your door pleading for the opportunity to 'serve' the individual investor by
'protecting' this investor from the ravages of the lowest cost financial trading instrument on the planet. I ask you to answer,
whom are these firms protecting?
I would also conjecture that low cost Forex trading is in our national interest. Why? because individual investors are the heart
of innovation and these investors if winning money in the gunslinging Forex market will likely invest their wirmings here in
the US in other ways. This as opposed to the financial services firms living in Manhattan who are more likely to spend $$ on
fine foods and other items that do not contribute to our overall wealth over the long term.
I know my arguments are infantile compared to those of the well monied financial services firms. I also know that by putting
my words out early it will allow these companies to tailor their responses. I do not fear this. Why? Because if you believe that
free, low cost markets are good for the U.S. then you will immediately believe my statements to represent common sense
wisdom.
Good luck with all this and I do hope that the CFTC has undertaken a study of these endeavors with the intent to protect the
individual investors from charlatans, liars, cheats and robbers with high fees .... Not just from the charlatans and liars at the
expense of high fees.
Dan Pricei0-001
COMMENT
CL-05396
..... Original Message ....
From: dan price
To: [email protected]
Sent: Fri, February 12, 2010 5:56:39 PM
Subject: Regulation of Retail Forex
RIN 3038-AC61
I am ~vriting 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
~vrite modestly from the perspective of one of these small traders ~vho
understands that ~ve can buy options. Ho~vever 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 ~viggles. This
~vay I am making the markets ~vork for me, not solely my dealer. This is one
reason current options trading firms ~vill ~vant 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 ~vrite asking you to think this through from the
perspective of a small investor ~vho may not be protected by the 10:1
rule. Would it be reasonable that a person ~vho has placed a certain
number of trades or certain number of years? or certain size of
account? that ~vould not be protected by a 10:1 rule? Or ~vould some type
of very extensive education requirement help? Not the boilerplate and
quick ~veekend 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 ~vho may not be harmed
if they ~vere given equal access to markets as Goldman Sachs,
AIG or Warren Buffet. There must be a reasonable ~vay for a small
businessman(~voman) to open a small fledgling trading business trading
their o~vn 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 ~vish to further point out ho~v the options/stock marketplaces are noti0-001
COMMENT
CL-05396
protecting retail traders and are enriching ~vholesale traders or market
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.i0-001
COMMENT
CL-05396
Is it not surprising that the large trading houses are arguing that
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
