There is a petition out there to stop the CFTC regarding the new margin rules requirements. Sign this petition by visiting this link. I personally signed this petition.
Here is some information about the implications of the CFTC proposal that I got from Forex Magnates.com
Regarding leverage the implications are these:
Forex brokers and traders will now be able to place deals with maximum 1:10 leverage, meaning that from now on they will have to hold at least 10% of the deal as collateral (margin). This significantly reduces the size of deals that the traders will be able to operate from now on which in turn will reduce their potential gains and losses. CFTC gives exactly this explanation as the reasoning for this new requirements however there is a significant downside to this rule as well: reduced leverage means less profits for more advanced traders who actually CAN handle high leverages and can’t trade otherwise. Additional impact this rule would have on the US industry is that brokers will have their profits slashed as lower size deals mean much lower commission from spread. 2 pip on $100,000 USD worth deal is $20 to the broker, however with 1:10 leverage and same balance the deal size is $10,000 which means only $2 to the broker (how will they pay IBs with such low income is a mystery to me). This will also obviously limit the hedging opportunity for people who actually use these brokers in order to hedge their exposures elsewhere.
Furthermore, this new rule will seriously harm all US brokers and in turn will cause the loss of thousand of US jobs and millions in tax dollars because most of the forex business will either go offshore or will simply disappear or move to other industries such as futures or options (who knows perhaps this is the real reason behind these new rules). By the way, this is why offshore brokers shouldn’t gloat too much: not ALL the US business will go to them, some of it will simply go to other industries in the US.
And one last thing, the new rule will also potentially halt the Forex industry’s gradual shifting to the ECN/STP execution. Clearing houses are not big fans of small deals and typically won’t accept orders of less than 100,000 USD. So it’s a big question how exactly, and if at all, US brokers will now be clearing trades. My immediate guess is that they will stop doing that, as their risk from smaller sized deals is significantly lower therefore it’s worth keeping the deals in house and profiting from losses. Market Making is about to make a huge comeback.
Regarding Introducing Brokers the blow is even more serious:
Registered Introducing Brokers (IBs) will be able to work with only one (!) broker and will also have to be guaranteed by it. This will reduce the number of IBs to absolute minimum, as Forex brokers won’t be able to guarantee ALL IBs out there, and will only leave a few large powerhouses – this is like your cell network operator will be offering you only one version of a mobile phone. Significantly limiting the competition is never a good thing for the consumer. Most of the IBs will close their business and those remaining will be forced to offer sometimes inadequate solutions to their customers simply because they won’t be able to offer anything else.
I had an interesting conversation with one of my Forex contacts and he suggested that if we all combine forces perhaps we will be able to fight these rules and perhaps change CFTC’s mind on several issues. He suggested to do the following, and I’m joining his effort here asking all of you to do the same:
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