On August 30th the CFTC (U.S. Commodity Futures Trading Commission), which oversees and regulates futures and spot-forex trading in the United States, released their "final rules" regarding 'off-exchange retail foreign currency transactions;' forex trading as we know it.
You will likely read a lot about the new CFTC forex rules, but unless you are an FCM, Broker, or a money manager (and operate in the US) the new rules probably will not have much of an impact on your life. The new rules state that all persons or entities that are soliciting over the counter retail forex trading must register with the CFTC and NFA as either a futures commission merchants (FCM's), retail foreign exchange dealers (RFED's), introducing brokers (IB's), commodity trading advisors (CTA's), commodity pool operators (CPO's) or associated persons (AP's) of any of the aforementioned groups. Previously only FCMs and FREDs were required to be registered. What this essentially means is that there should be oversight and more accountability for brokers and money managers. More regulation of this nature is a good thing for Forex, which has gained a reputation of being a potentially unsafe industry to be trading in, particularly because it has been moderately regulated at best.
The next rule, and one that will affect everyone who is associated or trading with a US based broker or dealer. Maximum leverage will now be 50:1 for major currency pairs and 20:1 for "exotic" currency pairs. The NFA will be in charge of designating which pairs fall under which security deposit requirements. Thankfully they did not go with the proposed maximum of 10:1 leverage. Even so with brokers outside the US (the UK for example) offering standard leverages of 100:1, 200:1, and higher, I can only imagine that this new ruling will only serve to hurt forex trading in the US and force many traders to seek brokers outside the US to fulfill their trading needs.
So if you're saying to yourself "So what? Should I even be concerned with this?"
Probably not. The majority of FCMs and brokers dealing via Metatrader are either located outside the US, like Alpari, or operate with offices outside the US and send all their metatrader accounts to those offices (Gain Capital, aka Forex.com does this with any metatrader 4 account). Because hedging is already not-allowed in the US they were circumventing it by sending the accounts overseas.
So in brief; these new rules are somewhat of a double edged sword for US based forex trading. For one they bring some new levels of accountability to anyone soliciting forex trading, which is always good for traders like you and me. However the new leverage restrictions don't do much to help, as it increases the amount of money we need to begin trading with.. and subsequently reduces the earning potential of each dollar we trade with. The high leverage is a prime component of what makes forex trading attractive to new traders, and high leverage is also required to make any substantial gains as currency fluctuations are most often only fractions of a percent.
"Anything else we should be worried about?" Only if major countries' regulatory bodies follow suit. Since I wouldn't trust my money with a small unregulated broker operating out of a tax haven, only brokers regulated in their country of origin. If the UK, where many MT4 brokers are operating follow suit and institute leverage regulations that mimic the ones the CFTC just passed we may all be forced to trade at these reduced leverage levels... but for now we're fine.
The new regulations take effect October 18th, 2010
