Friday, December 15th, 2017

Current CFTC Forex Trading Leverage Rules And Reforms

January 9, 2011 by drewloupsen  
Filed under Legal

There is a rumor doing the rounds that there could be a bit more than meets the eye to the new CFTC suggestions to reduce leverage for retail foreign exchange traders from 100:1 to 10:1. The rumor involves a turf war. The 2 rival gangs are futures brokers and foreign exchange brokers. The futures brokers are the Old Boys Club, the foreign exchange brokers are the cocky new kids on the block. Both are registered at the NFA, both are regulated by the CFTC, but right now there is only one winner – the foreign exchange brokers.

Currency exchange brokers ‘ growth rocketed while futures commission merchants at best stagnated. It is surmised that 20% of currency trading in Japan is now done by folk like me and you, tiny folk, who were formerly excluded from this game. A major Long Island based foreign exchange broker claims 150,000 live trading accounts and $600 million in client funds. So the Old Boys Club, the futures brokers in Chicago, watched as new foreign exchange start-ups grabbed more and more of their share of the market every day. The forex trading fellows so effectively combined new technology ( the Net ) with aggressive promoting that they leapfrogged the contest puffing on their cigars in dark wood-panelled rooms.

Some Futures brokers incorporated forex broker and added currency exchange to the mixture of their offer to the general public. It was not enough. They were stagnating in terms of growth while foreign exchange brokers were booming. So what did they do? Here’s my educated guess. Let’s look at the history.

initially the Futures modernizing Act ( that regulated both futures and forex traders ) had the best interest of the currency exchange trader and financier at heart because it brought some much wanted regulation into a gangster heaven. Except it did not stop there.In fact they went on regulating and controlling and controlling. In fact , the CFTC took more regulatory actions against a few forex brokers in a couple of years than they took against all of the rogue old boys in their many years of not always proud and ethical existence! And still the regulatory screws tightened.

All of these rules about worldwide spot currency trading were legislated in the USA Farm Bill of 2008 and the authority so vested in the CFTC. Farm Bill? That is’s right, bushels of corn and forex – to the regulator there was no difference. Find that a bit weird? I do .

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