Guest post: Michael Stumm ( CEO Oanda ) on FX trading leverage

[ASusilovic]

The chief executive of OANDA, Michael Stumm, discusses the recent US regulatory crackdown on outlandish leverage ratios offered to currency speculators.

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The Dodd-Frank Wall Street Reform and Consumer Protection Act as signed into law on July 21st of this year, requires forex dealers to comply with several new regulations. Of these, the most contentious limits leverages for trades involving the major currencies to 50:1.

Contentious for some forex dealers perhaps, but OANDA has never offered leverage greater than 50:1.

The reason for this is simple; encouraging over-leveraged positions is actually a disservice resulting in unnecessary risk for most investors. For years now, this principled decision has been an easy target for other brokers who center entire marketing campaigns on the fallacy that trading at 100:1 or higher is a “benefit”.

Certainly there is a benefit for trading with excessive leverage, but it is the broker that benefits – not the client. Especially when the broker’s idea of making a market is to merely bet against its clients.

It is ironic to hear the response from certain brokers who for so long advertised high leverage ratios as a trading advantage, now describing the 50:1 limit as “reasonable” . If they truly believe 50:1 is an appropriate limit, why do they still offer greater leverage in other jurisdictions in which they operate? If 50:1 is reasonable in the US, should it not also be reasonable in the UK? The answer of course, is that in the UK, forex dealers are still permitted to offer leverage as high as 200:1.

Read more :

http://ftalphaville.ft.com/blog/2010/09/10/339136/guest-post-michael-stumm-on-fx-trading-leverage/

 

[Porcupine]

What has forex leverage at the retail level to do with consumer protection?

I can lose the same amount of money with a 50:1 leverage as with a 100:1 leverage.


I am sick and tired of the government telling us what to do. Retail forex trading was not responsible for the meltdown.

Moreover just a while ago they already regulated leverage down from 200:1 to 100:1.

And just because an FX retailer offers 100:1, does not mean I have to use it. Most retail firms offer you to downgrade.


This is just another attempted to hide the governments screw-ups and pretend they are actively doing something.


How about, instead of going after non-issues (and screwing some retail traders), the government would see if they can do something to fix the government spending vs. GDP ratio, and see if there is anything they can do before they are bankrupting the whole country in the next few years.

I think the days of free market society are over...it is like living in China.

 

[Yosemite]

Quote from ASusilovic:

The chief executive of OANDA, Michael Stumm, discusses the recent US regulatory crackdown on outlandish leverage ratios offered to currency speculators.

Wow. Please stand for Mr. Stumm.

Quote from ASusilovic:
Contentious for some forex dealers perhaps, but OANDA has never offered leverage greater than 50:1.

Which equals to
“Guys, why have you been trading with bucketshops? Ok, now come to us we’re so cooool”

Quote from ASusilovic:
The reason for this is simple; encouraging over-leveraged positions is actually a disservice resulting in unnecessary risk for most investors. For years now, this principled decision has been an easy target for other brokers who center entire marketing campaigns on the fallacy that trading at 100:1 or higher is a “benefit”.

Yes, Mr. Stumm. For years… but for decades there has been future brokers focusing entire marketing campaigns on ridiculous Day-Trading Margins that burned thousand of retail traders and none moved a finger. Doesn’t look a little unfair? At list it raises couple of questions.

Quote from ASusilovic:
Certainly there is a benefit for trading with excessive leverage, but it is the broker that benefits – not the client. Especially when the broker’s idea of making a market is to merely bet against its clients.

I am 100% sure you run a non profit company which distributes to charity at the end of the fiscal year. I am looking forward to see your report of the profitable accounts to compare it with the bucket-shop dealers.

Quote from ASusilovic:
It is ironic to hear the response from certain brokers who for so long advertised high leverage ratios as a trading advantage, now describing the 50:1 limit as “reasonable”. If they truly believe 50:1 is an appropriate limit, why do they still offer greater leverage in other jurisdictions in which they operate? If 50:1 is reasonable in the US, should it not also be reasonable in the UK? The answer of course, is that in the UK, forex dealers are still permitted to offer leverage as high as 200:1.

Yep, it is ironic to see these campaigns. But is mor-onic to see other frms, promoting themselves by badly badmouthing their competitors.

To make it clear and avoid flames, I have no affiliation or interest in defending bucketshops and nothing against Oanda. But I am tired to see firms stubbing each others for a couple of accounts.
I also hate hypocrisy.

The Trading industry rather than rules needs more ethics and less hypocrisy.