Trading Forex with a US-based Broker?

As some of you already know, the CFTC announced the publication in the Federal Register of proposed regulations concerning FX retail transactions on 13 January 2010. The rules include change in minimum capital, record keeping, financial reporting, the amount of leverage allowed, among other operational standards. Most importantly, the plan is to set the maximum leverage in US retail forex transactions to 10:1 - that's 10 times lower than the 100:1 cap set by the NFA a short while back.

10:1 Proposed Leverage 

Forex brokers currently extend leverage to their customers at ratios of between 25:1 to 400:1 or higher, depending on the currency pairs being traded and the size of their accounts. Their reason for limiting forex leverage to 10 times is that “the extreme volatility of the foreign currency markets exposes retail customers to substantial risk.”

Why CFTC is doing this?

The reason why the CFTC wishes to limit leverage is understandable if you think of forex trading as a long-term investment like stocks. However, most forex traders trade very short term and need the leverage to give them meaningful profits. If forex traders were looking at a long-term currency investment, they would be putting their money in a foreign exchange bank deposit instead of with a forex broker.

Please note: The proposed rule has yet to become effective, as it is in public comment seeking phase right now.

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