No More 200:1 Leverage

D

dnaj65000

I heard that starting December 1, 2003 the NFA is going to limit all FX traders to put up 2% margin or 50:1 leverage. I didn't believe it at first and so I searched the net and found this link from the NFA site detailing it:

http://www.nfa.futures.org/compliance/forexInterpNotice.asp

I then went to FXCM's 24hr chat support and asked them about it and the representative there said that the rule in question has not yet been passed. I tried searching other sources and I haven't been able to find a definitive answer.

Since I am just opening my first mini account, it's going to affect me. I'm wondering if anyone has heard wether or not this rule is true and will come into affect on Dec 1st.

DNAJ65000
 
An alternate to consider might be trading the currency futures - for example, I think the initial day trading performance bond on the Euro FX contracts is around 1%.
 
Use a broker from Euroland, where we have a free Forex market - and get also EU protection of your money. Up to the first 25.000 or 30.000 euro.
 
Quote from Nana Trader:

Why you need more than 50 times levearge? and
how it is going to affect you emini account?
More...

I was initially attracted to the high leverage because it would only cost me $50 per mini lot. So by keeping my account really small (close to the minimum of around $300-$500) I could learn to trade the FX market without much risk.

However, if the FX broker now requires me to put up $200 per mini lot, I have to have a bigger account to trade...therefore more risk for me.

DNAJ65000
 
Quote from dnaj65000:


I was initially attracted to the high leverage because it would only cost me $50 per mini lot. So by keeping my account really small (close to the minimum of around $300-$500) I could learn to trade the FX market without much risk.

However, if the FX broker now requires me to put up $200 per mini lot, I have to have a bigger account to trade...therefore more risk for me.

DNAJ65000
More...
What difference does it make? As long as you keep the same lot size, your risk is still the same except it costs you $200 to buy one lot instead of $50. I'm assuming that you wouldn't be trading more than one mini lot for $500 in trading capital. After getting into one lot, you have $300 left, so unless you are planning on risking 60% of your account on a trade, you don't have anything to worry about. Lot size is what matters, not leverage.
 
Quote from dnaj65000:
I was initially attracted to the high leverage because it would only cost me $50 per mini lot. So by keeping my account really small (close to the minimum of around $300-$500) I could learn to trade the FX market without much risk.

However, if the FX broker now requires me to put up $200 per mini lot, I have to have a bigger account to trade...therefore more risk for me.
More...
Risk is the same, the difference is how much bond/margin you need to have to put on each lot. You're going to lose whatever you're going to lose regardless of how much the bond/margin is and you could always lose more than the initial bond/margin if the position suddenly goes sharply against you.

So if you're learning to trade, you've got no business trading more than a 1 lot. And if you're quibbling about posting $50 vs. $200 for that 1 lot, you are WAY too undercapitalized and shouldn't be trading at all.

How many lots were you planning on trying to trade with only a $500 account?

Your RISK is (potential loss/lot)*(# of lots) - amount of margin/bond is irrelavent - check your account documents, your maximum loss is NOT limited to the amount you have in your account.

Good luck.
 
Thanks for the info. I consider myself a conservative trader so I will be only trading 1 mini lot on EURUSD. As for the comment about my risk is not limited to my account size, I believe my FX broker (Refco) does guarantee stops and in the case that I fall below margin requirements, I will be automatically taken out. So even if I don't set a stop, I could only lose my entire account. My account being only a $500 learning account, losing it all to pay for tuition is well within my budget. I could lose it all and not worry about it.

When I have fine tuned my system using the minis, I will then open the regular account and actually start worrying about my P/L. How I see it is that the mini is to give me access to live trading without worrying about P/L and keeps me focused on developing a winning system.
 
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