NEW CFTC Regulations: Leverage

There has been a lot of buzz in the Forex industry about these new regulations for the US retail Forex dealers, which will make them offer at most 50:1 leverage to Forex traders (for major pairs).

MHO about these new regulations is that they are a step forward to make the Forex market better for traders. Sometimes we need someone else to take care of ourselves.

So what will be different the next 18 of October, when the new regulations will take action. Let’s see an example:

Before the 18 of Oct.

If you open a trade (standard lot) using a 100:1 (1% margin) you would use US$1,000 to open your trade (as collateral in a EURUSD trade transaction for instance) and you would use the remaining capital to support your trade in case the market goes against you (of course you could use SL).

After the 18 of Oct.

With the new regulations, you will only be able to use 50:1 (2% margin), so you would use US$2,000 to open your trade, also as collateral in a EURUSD trade transaction.

(For mini accounts divide it by 10)

So the only thing that will change is the amount of money you need to open a trade, the pip value will be exactly the same.
Now let me tell you something, if these new regulations affects the way you are trading, I’d recommend you to think about your strategy again, you are probably risking too much (again IMHO). And I’ll suggest you to take a new look to your money management technique.

The same happened when they got rid of the hedging feature, a lot of us were uncomfortable with it, but having contrary positions in the same currency pair is exactly the same thing than no having a position at all (brokers were collecting additional spread from a position that is nonexistent). So, it was in our best interests, but we still resisted to that new rule.

Change is good! And I think the new regulations are specially one of those changes that will make the Forex market better for us.

What do you think?


Raul Lopez