Where has the Freedom of Choice gone in the US?

Time is running out for US traders as the new CFTC regulation will be enforced by next Monday the 18th of October, capping leverage on Forex trading accounts at 50:1. 

Its is a shame that US traders are losing more choice from basic trading functionalities like;

  • leverage from 1:1 to 500:1,
  • hedging,
  • scalping,
  • straddle,
  • martingale
  • and carry trade strategies… etc.

In an upcoming blog we will provide US traders with a solution.

Changes to leverage has little affect on the way I personally trade, as I will explain to you in more detail.  But I believe if you box people in and treat them as though they’re ‘stupid’ then you actually teach them to be ‘stupid’.

To me freedom of choice is a teacher of personal responsibility; where a person takes pride in making the right decision for themselves based upon their own capabilities, ultimately learning how to ‘self regulate’ their behaviour. 

Of course people will make mistakes as they go, but that is the inevitable learning process. These days education is very accessible to every trader.

The new CFTC regulation leaves US traders with little ability to choose how they personally would like to trade.  OK, I know it’s much better than the proposed 10:1 ruling, but how about creating legislation where the 50:1 or even 10:1, only applies on new accounts until proof of historical trading exceeds both a certain amount of active trading years and continued level of success.

This would be a smarter option for the people who need protection from themselves, and doesn’t restrict the serious professional retail traders who treat their trading activities as a business.

And like I said, the freedom of choice and importantly personal responsibility is then not taken away.  I do believe people rise further when responsibility is earned and rewarded.

I mentioned changes to leverage does not have a direct and significant affect on my trading activities.  This is because my position sizing (number of lots I enter) is based upon a fixed percentage of my account that I am prepared to lose on each trade, “Maximum Risk%”, instead of being based upon the available margin in my account that is linked to my leverage limit. When my “maximum risk%” is kept at a reasonable level I use very little margin.

To me that is common sense. I rarely consider the margin.  But for traders who use strategies of larger or a considerable amount of open positions at one time, its just another blow to add to the existing restrictions in the US.

If novice traders are having margin issues and blowing their account within a few trades, (no matter what account size they started with), then they are setting their position sizes way too high.

Position sizing becomes harmonious with your margin when it is sized through the Maximum Risk % calculation and kept under 3% per trade.  Even with 10 trades open at one time the margin is relatively comfortable.

For example;

If I have a $10,000 account balance and don’t want to risk (Maximum Risk%) more than 1% ($100) of my account per trade, and my Stop Loss is 100 pips away,  if my accounts pip value is 0.10 cents per pip, I could effectively purchase 0.10 mini lots and not exceed a potential loss of $100 on each trade.

  • $10,000 x 1% = $100.
  • 100 pip SL x 10 cents per pip = $10 potential loss per lot.
  • $100 divided by $10 = 10 mini lots (0.10). 

Right at this point in time the EURUSD is trading around 1.3870, 1 mini lot (0.01) in a $10,000 account on high leverage of 500:1  requires approx a $2.80 margin and on 50:1 leverage it would require $28.00 in margin.

But you can see, regardless of the leverage ability on the account…the potential loss is capped.

Novice traders blow themselves up due to incorrect money management, and therefore with access to larger leverage without the right knowledge also leverage their stupidity.

But why restrict the seasoned traders?

Give back the freedom of choice to those who have earn the right of ‘self regulation’ and provide compulsory education and limitations only to the new guys who need to ‘walk the talk’ first.

Bye for now, a solution from the team will be posted very soon.

Regards Albert

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