View Full Version : Leverage in Jeopardy
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I did not examine it in detail but after a cursory glance it appears like futures exchanges are noticing a change from their merchandise to the area market and are using their political muscle to nip that shit in the bud!
So am I right in stating that if this were passed. . .that it would eliminate joe the trader from trading Currency Market?
Great just when I was getting good!!
So am I right in saying that if this were passed. . .that it might eliminate joe the trader from trading FX?
Great just when I was getting fantastic!! I guess the powers to be want to protect you from you now.
Yes, there is another thread on this also...
https://forexintuitive.com/discussion-trading/97934-time-zones-day-light-savings-major-markets.html
So am I right in saying that if this were passed. . .that it would eliminate joe the trader from trading Foreign Exchange?
Great just when I was getting good!! This leverage limitation is simply for FINRA regulated companies, it will not apply to those companies regulated by the NFA.
Yes and though a 1:25 maximum that is sufficient is enforced by NFA.
There isn't any difference between 1:400 and 1:25 because everything is defined by your Risk Managment.
Simply wrong. There are a few egies which rely on higher leverage. What made you say that?
Yes and even though NFA enforces a 1:25 maximum this is more than enough.
There is no difference between 1:400 and 1:25 because everything is characterized by your Risk Managment.
I really don't think Finra has any jurisdiction so if US brokers were no longer able to offer high leverage afterward you could could use a UK broker rather than In reality anyone trading with over 8-1 to leverage is asking for trouble in the long run. Anyone who has been trading long enough understands this. I doubt that reducing leverage is really going to help your newbie who will blow up his account . It will take him a little longer with less leverage which I guess isnt a bad thing.
Example:
10.000 USD Balance
3% Risk = 300 USD
Pips at Risk 100 Pips.
=gt; Lotsize 0.3 Standard Lots or 30.000 Units
Margin Requirement with 1:25 = 30.0000/25 = 1200 USD
See how that is easily possible with 10000 USD?
Now with 1:500 leverage it's 30.000/500 = 60 USD.
What is the risk? 3%!! Is there a difference between
1:500 and 1:25? NO! Why? Since the RISK is the same.
You can also risk 20 percent on 100 Pips of your account this
would require 8000 USD of margin.
Now please say 20% risk per trade is not sufficient and I'll laugh my ass off.
Show me one trade who deals for 5 years who consistently risk 20 percent or more on his trades.
After only 3 losing trades you're down 50% on your account. That makes sense if you would like to exchange for a living.
Unless you can pay for your new car and home with losses of course.
I don't think Finra has any jurisdiction beyond the USA so if US brokers are not any longer capable of giving high leverage afterward you could may use a UK broker rather than
Yes, unfortunately many foreign brokers will not accept US traders.
Actually anyone trading with over 8-1 to leverage is asking for trouble in the long run.
$10000 account. 100 pip stop loss. 1% account risk. That's $100 risk, or $1 per pip.
.0001 * $100000 = 10
.0001 * $10000 = 1
.0001 * $1000 = .10
That means assuing a 1% account risk in a 100 pip stop loss you can tade $1 a pip or a miniature lot, aka a $10000 lot. That's a 1:1 leverage. That trading.
Many folks would trade 2% in a 50 pip stop loss, and can do so successfully. 2% is $200. $200/50 = 4 per pip, or $40000. That's 4:1 leverage.
So now what happens if I wish to have several uncorrelated trades? The risk per trade is still quite safe, but the leverage restricts squish it.
A 1.5:1 ratio, as suggested by FINRA, is absurd. Then we start getting in to fundamentals, although A 10:1 or 20:1 will be fine for me . Why should anybody have any say over what leverage that you would like to trade ? If you would like to risk blowing up your account then that is your best.
Anyone who's been trading long enough knows this. I doubt that reducing leverage is really going to help your newbie who will blow up his account anyway. It will just take him a little longer with less leverage which I guess isnt a bad thing.
No, it won't help him at all. Infact it will hurt new traders instead of help them. Why?
Think about it. Most brokers have a minimum lot size of 1000. At 2:1 leverage you would need $500 to control this transaction. That means you have to deposit more than this in order to trade. Since most new traders will blow their account, you can more or less write off the account as a learning experience. Whether that is $500, $100, $1000, or whatever.
Because bucket shops have very efficient margin procedures, it's difficult to wind up negative. The less leverage a individual has, the more they have to throw away in order to find out. That forex is an ideal teaching platform. You can learn to trade with forex far cheaper than you can w futures or stocks.
A person could trade demo for 6 months, deposit $1000, and exchange it with tiny lots for the following year. By the time they are done they will have more than a year of trading expertise for next to no cost. Anything that tries to make forex behave more like stocks do ends up hurting new traders by making the learning curve expensive.
Now with 1:500 leverage it's 30.000/500 = 60 USD.
What is the risk? 3%!! Is there a difference between
1:500 and 1:25? NO! Why? Because the RISK is the same.
If the stoploss retains, yes. You also get gapped, or if the stoploss gets fill that is bad , then your risk changes.
Now please say 20% risk per trade is not sufficient and I will laugh my ass off.
With margin it's not the per trade risk as far as it's the cumulative risk for all available trades.
Yes, regrettably many overseas brokers will not accept US traders.
$10000 account. 100 pip stop loss. 1% account risk. That is $100 risk, or $1 per pip.
.0001 * $100000 = 10
.0001 * $10000... I have thought about this along time also. (Multiple Trades). I have come to the conclusion that it wouldn't make much sense boost the risk because you would like to exchange pairs. Your risk should stay let's say 3 spread this across the trades. Otherwise you can trade 1 pair with greater risk anyhow.
I concur with you about the principle stuff. You are giving away abit of your liberty.
In the event the stoploss holds, yes. You get gapped, or In case the stoploss gets bad fill , then your risk varies. Right but that could happen with every leverage and since the amout on components traded is always exactly the same the result of such an event are the same using 1:25 or 1:500.
Also everybody should have a look in the institutional world. You will find anybody using more than 1:33 leverage.
Of course it's more difficult to get higher leverage should you exchange a 500 Mio USD Hedge Fund yet the other reason is because it just does not make sense.
I have thought about this along time too. (Multiple Trades). I have come to the conclusion that it wouldn't make sense increase the cumulative risk because you would like to trade pairs. Your risk should remain let us say 3 spread this across the trades. Otherwise you can trade 1 pair with higher risk anyhow.
Nod, surely should plan out the cumulative risk vulnerability. I don't have over 10% cumulative risk at any time, and seldom over 5%.
But sometimes taking numerous trades will benefit you. Have a look at the triangle transaction. Ie: two currencies against a base currency, and the two currencies as a cross. Like the GBPUSD, the EURUSD and also the EURGBP.
At any point in time a massive move in the dollar will force both based currencies to change, but times once the dollar doesn't move still may provide an opportunity in the cross pair. By taking the trade in all pairs at once you average from the net behavior. As long as you have an advantage to help determine what the net behavior will probably be, you can average a single losing trade out and simply play for weakness or strength.
Obviously there is an whole system there, and that is outside of the scope of this thread, but that is my point... some approaches actually benefit from trading numerous pairs. Limiting leverage to a level diminishes the type of egies we can use, and not in a way that is good.
Proper but that could occur with each leverage and since the amout on units traded is always the same the result of such an event are the very same with 1:25 or 1:500.
Depends if you're talking account leverage or effective leverage. The account leverage will have a backseat to your powerful leverage. I guess the theory behind that is if you cap the maximum account leverage you cap the powerful leverage too, but folks can do that in their by reducing lot size. I said something to that effect when I sent in my comment.
Additionally everybody should have a look in the institutional world. You will seldom find anyone using over 1:33 leverage. Of course it is more difficult to secure leverage if you trade a 500 Mio USD Hedge Fund but the other reason is because it does not make sense.
Very few surviving traders will ever use over 20:1. However, the cap must come in the trader, not a few almighty regulator. The key would be eduion. Teach people how (and why) to restrain leverage rather than forcing them suck a 1.5:1 cap.
There's a combination of issues here. The urge to regulate, the part of an oversight organization, the arbitrary ultra-strict cap they've chosen, the seemingly useless job of FINRA in forex, the power of the US to regulate it's own businesses in an international marketplace, just to name a few.
The dilemma is clear enough however: In case FINRA's 1.5:1 cap becomes the rule, which rule spreads to the NFA, then domestic US FOREX brokers are done and we'll all be moving our company abroad. That will be bad on so many levels.
Great when I was getting good!! Precisely What I thought. .
I was planning to post this information... Mail them tell to stop this BS.
Again, email to
Yes and even if NFA enforces a 1:25 max that is more than sufficient.
There is no difference between 1:400 and 1:25 because everything is characterized by your Risk Managment. Which isn't correct. The reduced the leverage the money you have to put up. The more cash you set up the more you risk to lose. The concept that reduced leverage is better never makes sense. A guy trading with 100 dollars and utilizes 400:1 leverage will need 1600 dollars to exchange exactly the identical way. His risk is a lot greater and his loss is a lot greater. Yet if he trades a 1.00 lot and losses 25 pips, he loses 25.00 dollars exactly the same as the guy with 1600. The difference is that the total possible loss is a lot greater for the guy with 1600. Plus if a broker ever goes out of business guess who loses cash.
Hello,
Though I do not live in the US (UK resident), I can't find this leverage proposal heading anyplace. It would be opposed by too many bodies in addition to the lobby for broking companies because they are connected with retail broking.
Price equilibrium in FX would totally change and what they call excessive speculation in that newspaper is nothing else but contributing positively to market equilibrium. Retail FX clients are limited specifically by those leverages from how that they can influence the market - when the margin is lost, they are out of the match anyway or they must refund.
Most of us know here that markets that have less contracts traded (or in other words less liquidity) are prone to more inconsistent moves and less price equilibrium.
Take a inventory such as that has insufficient sellers at the same point - the spikes involved in these kind of market state are a lot more extreme than in FX which is still the most liquid tool by daily transaction and daily turnover all included. Remove the retail part of it and your volatility can shoot up in a second if one player has to put a rather large order in the market.
The next thing is: this proposition resembles a planned economy to me. Individuals could recall this kind of market from the Soviet Union - strategy in other words. Control and dictation how much can be traded and of who - has nothing to do with totally free market economy that is the building block of the world that is free.
It will not happen in America. That is my firm opinion.
Regards
P.S. I had a look in FINRA's alphabetical members list and couldn't find any of the larger FX retail companies listed. Appears to be one regulatory body which wishes to stir things a little.
I give it everything stays the same and a chance that it's not going through. Plus leverage for Retail Brokers does not impact the market anyway. Our currency will in most cases never see the market if we trade with an MT4 broker.
Hi,
Although I don't reside in the US (UK resident), I cannot find this leverage proposal heading anyplace. It would just be opposed by too many regulatory bodies as well as the reception for broking firms since they are linked with retail broking.
Price equilibrium in FX would totally alter and what they call excessive speculation in that paper is nothing but contributing favorably to market equilibrium. Retail FX clients are limited specifically by those large leverages from the way they can help determine the market - when the margin... With the respect to the way bankers and brokers are seen that the public would not care if they regulated them to the control. I've read some posts on TheHill.com discussing altering margins. All of the current thought believe that margins must be for the men that are big. The pols think we as traders are too dumb to understand what we are doing.
I'd say that everybody who reads this thread check back to see if the SEC comment period arises and should keep note of the matter. At this time a severe mobilisation should take place by as many traders as possible to submit reasoned arguments to the SEC against this proposed rule that is ailing thought-out. The acceptance of a rule by one regulator could open the floodgates.
I remember when the SEC opened a comment period regarding the Silver Users Association tips against the regiion of the first silver ETF. A massive mobilisation of discussions took shape against the SUA on the SEC comment webpage, and I think this made a significant contribution.
Keep watching the Matter.
I am able to open more places (and absorb more red pips before a margin call) w/ greater leverage.
It WILL make a difference to some people's trading methods/styles. (Me, for one)
Example:
10.000 USD Balance
3% Risk = 300 USD
Pips at Risk 100 Pips.
=gt; Lotsize 0.3 Standard Lots or 30.000 Components
Margin Requirement with 1:25 = 30.0000/25 = 1200 USD
Notice how that is readily possible with 10000 USD?
Currently with 1:500 leverage it is 30.000/500 = 60 USD.
What's the risk? 3%!! Is there a gap between
1:500 and 1:25? NO! Why? Because the RISK is the same.
You could also risk 20 percent on 100 Pips of your account this
would demand 8000 USD of margin.
Please say 20% risk per trade is not sufficient and I will laugh my ass off.
Show...
My issue is that although there may be tens or hundreds of thousands of individuals contrary to the law, which the resistance will not be arranged.
In war, you will need direction. And it would be nice to have a well defined business fighting against this. Alas, with no egy and a few thousand petitions, I don't see it being almost as powerful.
I'd say that everybody who reads this thread should be aware of the issue and wait to see if the SEC comment phase arises. At this time a severe mobilisation should take place by as many traders as possible to submit concluded, detailed arguments into the SEC against this ill thought-out rule that is . The acceptance of such a rule by one regulator could open the floodgates.
I recall if the SEC opened a comment period regarding the Silver Users Association tips contrary to the regiion of the first silver ETF....
A 10 pip loss on 1 lot is $100, regardless of what leverage you're using.
Problem is sold with the abuse of high leverage.
$1,000 and 500:1 leverage means you can trade 5 lots at a time. 20 pips from you and your account is now gone.
Nope.... If it is 10:1 vs. 100:1, the margin requirement would be 15000 vs. $1500 to control 1 lot.
That means you have $13500 additional red pip absorbtion dollars in the account, or the equivalent of 135 pips.
A 10 pip reduction on 1 lot is $100, no matter what leverage you're using.
Problem is sold with the misuse of high leverage.
$1,000 and 500:1 leverage means that you can trade 5 lots at one time. 20 pips against you and your account is gone.
Nope.... If it is 10:1 vs. 100:1, the margin requirement would be $15000 vs. $1500 to restrain 1 lot.
That means you've got $13500 extra red pip absorbtion dollars in the account, or the equivalent of 135 pips. Yes that is correct, but 10 pips with 1 lot = $100 no matter what.
I know that the risk is greater with your money backing the trade (as per your other thread, a gap against sending you into a negative balance for example).
Sorry, hit submit instead of preview.
The example you submitted td with lower leverage, is still blatant abuse of leverage.
It's the traders responsibility to know about such risks in this particular game - i.e. gaping past your stop.
If you traded 0.1 of a lot in an account balance of $15k, that means a 15,000 pip reduction has to occur to wash you out. I might be overlooking something, but I have never seen a difference of this magnitude.
Abuse it, you risk losing it. Plain and simple.
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