What is the CFTC Forex Proposal?

What is the CFTC Forex Proposal?

On January 20, 2010, the CFTC released a Proposal containing proposed forex rules that it would like to see implemented for the forex industry.

In the past, a lot of scam has taken place with forex, especially when forex players advertisement that they will help you make a huge return on your investment with them, but run what is called a ponzi scheme. This occurs when he or she takes your money and promises to invest it for you but in reality misappropriates the money and uses it for his/herself. Also, many of these forex scam artists will provide false account statements to their customers or give them profit that they think that have made when this money is really just taken from the initial money the customer had used in the investment.

There are four major new proposed rules in the CFTC proposal. The first is reduction of leverage. Leverage is essentially a tool used to allow the investor (the customer) to trade in larger amounts of money than the trader had initially invested. For example, if a trader invest $1000 and is able to use 100:1 leverage, the trader will essentially be trading as if s/he had invested $100,000. The new proposed rules seek to reduce leverage to 10:1. Many people in the forex industry are against this amount of reduction because they believe it is too low. Most people are okay with 100:1 leverage. This is a maximum, anyway, and does not need to be used.

The next proposed rule is that introducing brokers (IBs) be guaranteed and not independent. Independent IBs currently have a minimum net capital requirement of $45,000 but do not have to be guaranteed to any futures commission merchant (FCM). Guaranteed IBs do not have minimum capital requirements but do have to have a guarantee agreement with one sole FCM.

Another important proposed rule is that all forex counterparties and intermediaries will be required to register with the Commodity Futures Trading Commission (CFTC) through the NFA (National Futures Association).

Lastly, a new minimum net capital requirement will be likely be put in place for FCMs and retail foreign exchange dealers (RFEDs).

For more information on the proposed rules, forex registration
requirements, or to speak with a helpful forex lawyer, please visit these informative sites.