Forex Leverage Limit 50:1, CFTC Final Retail Forex Rules

On August 30, 2010 CFTC has released its Final Rules Regarding Retail Forex Transactions.

The Commodity Futures Trading Commission (CFTC) released final rules for retail foreign exchange transactions on Aug. 30, which among other things will limit leverage available to retail forex traders to 50:1 on major currency pairs and 20:1 for all others. The final rules will go into effect on October 18th, 2010.
[pullquote_left]“Leverage in retail forex customer accounts will be subject to a security deposit requirement to be set by the National Futures Association within limits provided by the Commission”.[/pullquote_left]

Also, from October 18th 2010 as the the Dodd-Frank Wall Street Reform and Consumer Protection Act come into force, only United States financial institutions will be permitted to act as counter-parties to off-exchange retail Forex transactions for US residents and citizens.

Following these regulations non-US brokers won’t be able to accept US citizens any more. For traders who are not American citizens, but currently live in US, to open an account they’ll need to provide an ID and address proof from their country of citizenship. As well as all transfers to/from live Forex accounts have to be made from non-US banks.

The CFTC created quite a stir in January when their rule proposal for retail forex transaction included limiting leverage to 10:1. The regulator received more than 9,000 comment letters the vast majority of which were negative. Many retail dealers and traders said limiting leverage to 10-1 would kill the market or send it overseas. The proposal came out shortly after rules set by the National Futures Exchange (NFA) limited leverage to 100:1. Previously there was no standard and some forex firms offered leverage as high as 400:1. The rule actually give the NFA the authority to set leverage (minimum security deposit) levels but sets a minimum parameter of a 2% security deposit on major currencies and 5% deposit for all other currencies. Both the CFTC and NFA will periodically review the appropriateness of those parameters.

The new rules also require the registration of counterparties offering retail foreign currency contracts as either futures commission merchants (FCMs) or retail foreign exchange dealers (RFEDs), and sets requirements for registration, disclosure, recordkeeping, financial reporting, minimum capital and other business conduct and operational standards.

Read also CFTC: “Questions and Answers Regarding Final Retail Foreign Exchange Rule““