currency trading australia
Thursday, August 12th, 2010
The Ides of March have passed and we are in the throws of the NCAA College Basketball Tournament. With that in mind, let’s not make light of the $940B health care bill passed by the U.S. Congress and signed by President Obama with much fanfare from the Democrats. Outside the U.S., the drama continues with Greece and Google is standing up to “The Great Firewall” known as China. Interesting times indeed!
Focusing on the Forex landscape, the 60-day response period to CFTC’s proposed leverage rule that would cap leverage at 10-to-1 just wrapped up on March 22nd with more than 9000 responses filed with the CFTC. By one estimate, 99% of the responses are against the proposal! This proposed action by the CFTC is an even more blatant use of federal powers than the recent health care legislation in which almost 60% of Americans opposed the measure passed by Congress and signed by the President.
Gary Gensler, chairman of the CFTC, seems to be driven to make up for past sins when he, as an official in the Clinton administration, helped exempt OTC energy contracts from regulatory safeguards such as position limits. Enron Corp. and others took advantage, and Gensler has since expressed regrets about failing to fight harder “for the American people.” While this is a noble statement, Enron was run by corrupt individuals whose auditor looked the other way while it collected $1 million a week in auditing and consulting fees. Not bad work if you can get it!
In relation to Forex, Gensler and the CFTC seem intent on enforcing their will that traders should not be allowed to utilize higher than 10-to-1 leverage. Their thought process is again to “protect the American people” but the question remains, protect them from what? Themselves? Big Bad Forex brokers? This is a classic overreaction by government to “protect” citizens from evils that they identify. It is worth noting that the NFA and U.S. Senator Orin Hatch have written letters to Chairman Gensler expressing their concern over the proposal. The NFA is suggesting that the CFTC does not enforce a one-size-fits-all approach to leverage as leverage should be based on risk and volatility factors of the currency that is being traded. Sen. Hatch states that “requiring a higher margin on leverages for Forex would make the U.S. retail Forex market uncompetitive.”
Sen. Hatch is even more concerned that U.S. Forex traders will continue to participate in these markets but in “venues where the CFTC has no power to police trading practices.” On a side note, it is no secret that one of the largest U.S. Forex firms, InterbankFX, is headquartered in Utah. While both InterbankFX and Sen. Hatch are obviously concerned with preserving jobs in Utah, Interbank and the other large U.S. Forex brokers are already registered (or in the process of registering) in other countries such as the UK. Bet that the FSA (UK) and others will welcome U.S. Forex traders with open arms! Since financial services makes up a large percentage of the UK economy and given the state of their economy after the global recession, the UK will remain a haven for the mass exodus of U.S. clients who still seek the protection of a respected regulator but who will not force its will on the trading public.
Hopefully this March Madness will subside in the U.S. and the powers that be will realize the err of their ways before enacting another law the goes against the will of the American people. However, based on the CFTC’s track record and the political climate in the U.S., traders should start looking for a broker with a Forex friendly regulator in a country such as the UK, Australia or New Zealand.
Trading Currencies Strategies: Part 7
