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Regulations to impose restrictions on traders

Regulatory body is proposing mandatory registration for US-based traders and those working with them

Regulatory body is proposing mandatory registration for US-based traders and those working with them

Since 2009 the US forex market has faced more regulation than many of its international counterparts. The National Futures Association’s (NFA) FIFO ruling has limited forex traders based in the country from operating trading tools like ‘stop loss orders’, ‘limit orders’ and other orders originating from retail clients. Now further legislation is being proposed that would apply more restrictions to the local forex trading arena mandating that US based traders and international traders dealing with them register with the CFTC and the NFA.

US-based investors have in the past enjoyed leverages of 500:1 via certain retail online forex brokers, but the new proposed legislation would cap maximum leverage at 10:1 on forex positions. This will be a huge blow to the local industry that had previously enjoyed unparalleled advantages. The new regulation has been proposed in an attempt to limit risk exposure and protect the public. Conversely, some analysts see the measures as so drastic that international brokers may refuse to deal in the US forex market.

Compulsory registration with the CFTC will apply to all retail foreign exchange dealers, futures commission merchants, commodity trade advisors and forex commodity pool operators, as well as introducing brokers and all associated persons working with any of the operators listed. Retail FX dealers and those dealing in futures will also be required to maintain a minimum net capital of $20m in addition to five percent of the amount by which liabilities to customers exceed $10m; a potentially fatal requirement to smaller traders.

The Foreign Exchange Dealers Coalition (FXDC) has launched a website dedicated exclusively to lobby against the new proposed measures. The body has been vocal about its opposition on the 10:1 leveraging restrictions in particular, suggesting such a measure will be detrimental to the US forex trade and the American economy in general. In their website, the FXDC speculates that 90 percent of retail forex traders are likely to move their accounts offshore is the proposed restrictions are approved, costing the US bullions of dollars in trade and tax revenues.

“The domestic industry’s revenue is well over $1bn. This revenue is money generated from a product that is in many ways an export” said the FXDC in a statement. “Furthermore, as capital markets open in the BRIC countries the number of new accounts that will flow out of places like China and India will lead to huge job and revenue gains in the United States. Trillions of dollars of trade volume are at stake. This is money that could (and should) be booked in the United States as taxable revenue. But if this rule passes the United States could well be costing itself billions of dollars in taxes down the road.”

 

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