First I want to state that I have been to so many Forex boards and forums over the past weekend and the buzz about the CFTC proposal is amazing. Yet, there is just an incredible amount of misinformation out there. The general tone is one of wondering if the CFTC is trying to put the screws to us all?
Well, it could be but then again…Maybe they just don’t understand what they’re talking about.
On the question of leadership on all of the boards and forums I’ve visited this past weekend, I find it astounding that people who are supposed to know these things aren’t even addressing what the real issue here.
This is very important and it is vital that everyone recognize the real issue here.
As I read it, the CFTC 1:10 Forex Leverage Proposal in somewhere between misguided and outright ludicrous. It appears to me that the CFCT does not understand retail Forex market trading and where money management ‘risk’ can become hazardous to Retail Forex trading. If they do understand the Forex market then the proposal is disingenuous at best.
The stated intent of the CFTC proposal is to protect retail traders from risk. But they are missing the mark.
What the CFTC is proposing increases the retail trader’s risk by a factor of 1000%.
The math goes this way:
At the current 1:100 leverage, for each $100.00 of his/her out of pocket Capital Investment Risk Exposure the trader is entitled to trade $10,000.00 worth of currencies.
At the proposed 1:10 leverage, the trader is entitled to trade the same $10,000.00 worth of currencies but his/her out of pocket Capital Investment Risk Exposure is $1,000.00 as opposed to $100.00.
The CRTC proposal ‘increases’ out of pocket Capital Investment Risk Exposure by 1000%.
Clearly something is wrong with the proposal; it is either terribly misguided or worse. How would the retail trader’s exposure to risk be reduced with their proposal? What is the common sense answer that is being overlooked?
Reducing Leverage from 1:100 to 1:10 is not the answer. The proposal as it stands as a disaster-in- waiting for retail traders.
The right solution is for the CFTC to tackle margin control.
In order to protect the new/naive/self destructive and or otherwise uneducated trader from him or herself, account margin limitations should be revised so that the trader’s out of pocket Capital Investment Risk Exposure is never any greater than 5% or 10% or his/her trading account at any time.
Leave leverage alone; leverage is neither the problem nor the solution. The answer to risk exposure is not leverage control. In fact, leverage control would have the exact opposite effect by increasing risk – tenfold.
The answer is margin control.
Apart from that, I would call on the CFTC to use whatever pro-active and aggressive steps necessary to keep unscrupulous brokers/operators and get-rich-quick- and-easy ‘fantasy’ educational scams out of business.
I urge all Retail Forex traders to write to the CFTC regarding the proposal and use this sort of tact.
You can feel free to use the body of this message as an outline for your message. Don’t only bitch and complain; give them a solution as well. Tell the CFTC to police risk through managing margin: not through reducing leverage.
Send your comments directly to the CFTC at: secretary@cftc. gov.
Please include ‘Regulation of Retail Forex’ in the subject line of your message and the identification number RIN 3038-AC61 in the body of the message.
You can also submit your comments by any of the following methods (include above ID number):
Fax: (202) 418-5521
Mail: David Stawick, Secretary Commodity
Futures Trading Commission 1155 21st Street, N.W.,
Washington, DC 20581
Courier: Use the same as mail above.
In addition to this I suggest you C/C a copy to your area Congressman/ Congresswoman. ..to impress upon the CFTC that you are willing to take your opposition to the CFTC proposal to a higher level.
One more thing is this…don’t just do nothing because you think that in the worst case scenario you can get an account abroad…the CFTC wants to get it’s grubby little finger into Europe too so…Stop them now by telling them that the problem is not leverage!
Regards,
Jeff
