Here we go again… the CFTC (www.cftc.gov) has put a proposal on the table that is recommending changing the US Forex leverage limitations further from 100:1 to 10:1.
Leverage is the instrument used in Forex that allows those of us with small accounts to control large amounts of money in order to make a larger profit on the money we have available to us to trade. Without it the ability of the retail trader to grow their account and earn an income off of their profits becomes severely handicapped, if not killing the possibility outright. To be fair it is high leverage that creates the opportunities for massive failure and losses as well, as most of us have experienced at one point or another. However, someone who trades for a living understands this and has learned how to manage that risk. It will make it nearly impossible for someone who has a small amount of money to build an account to the point that the profits from that account can sustain them financially.
By making that impossibility we face the probability of a mass exodus from this sector of the financial industry. People will be forced to give up their hard earned trading practice or move their accounts overseas which is probably what I will eventually do anyway. Both processes have already begun when the NFA interjected their first leverage limitation and eliminated hedging in FX in 2009. US dollars will leave the US and fund the FX industries abroad. US dollars will be making money for non-US companies. That is not in our best interest. Retail traders will find it difficult to navigate to trustworthy brokers in countries whose laws they’re not familiar with or in touch with. That is not in our best interest.
While that financial consideration is going to be in the forefront of the conversation here is the unintended consequence that I’m most afraid of. When the government steps in to finally make investors accountable and it hurts the little guy so much harder than it hurts the big market makers (corporations, banks and insurance companies) – and it will – I fear that it will further fuel the “get government out of our lives” sentiment of voters. When we successfully rid ourselves of regulation and accountability by our representatives in government we empower and embolden the financial war lords to continue their pillaging both on our shores and abroad. We can’t risk any more of that. We simply cannot!
You can send your own comments about the proposal to secretary@cftc.gov for consideration. Include RIN 3038- AC61 in the subject line. It has not passed yet, so now is the time to express your thoughts on the matter.