Discussion in 'Interactive Trading' started by leverage, Jan 15, 2015.
Good idea, better "out" than "dead" !
They dropped max leverage from 50:1 to 33:1 or 20:1, as a REQUIREMENT, for US-Based traders. At least on Franc and the Nordics. I wonder if Yuan requirement changes come next. Though, at least on Oanda, most exotics are 20:1, at best, so this isn't too bad. If you trade those.
people that STILL want to trade the CHF remind of me of those women stuck in abusive relationships.
no it's not funny, it's sad.
The War on Leverage continues. Not that it's the questionable to illegal leverage amounts that Hedge Funds use isn't the major problem.
I love how much Americans are flipping out over the new leverage rates being put in place. They're talking like its' the end of Forex for them.
Here in Canada, we've had the same FIFO, no hedging, etc.. rules and much smaller leverage for a long time and it doesn't stop people from blowing up their accounts or making money:
I mean, some pairs require margin of 28% ... that's 3.5:1 leverage max.
Hmmm... so this is democracy in action. We elect a government to protect us - from ourselves, then we rejoice in being saved.
Then we look to our neighbour, he too is following our lead, he too is being protected from himself, this is democracy.
Ah! now I understand, this is the reasoning behind blank cigarette packaging in Australia, soon to spread to the rest of democracy - protect us from ...oh yeah, ourselves.
So you guy cannot hedge? - very wise, you have to be protected, from ...
What's this thing called again, oh, yeah, they have a name on it, you get to vote on it.
I'm glad I live in the last vestige of democracy ...... for now
But what if you don't want to keep the majority of your money with an online retail forex broker? Sometimes it's not about wanting to trade risky, it's about wanting to protect yourself from the brokers themselves
These posts got me thinking
Quote from: Peterma on Today at05:39:58 pm.
“Hmmm... so this is democracy in action. We elect a government to protect us - from ourselves, then we rejoice in being saved.
Then we look to our neighbor, he too is following our lead, he too is being protected from himself, this is democracy.”
I do not see this as democracy in action I see this as an Oligarchy : a small group of people having control of a country, organization, or institution that we chooses to label as a democracy that is achieving its goals. Those goals are the preservation and expansion of power, wealth and prestige- for the members of the oligarchy first and others if it also benefits the oligarchy. I don't consider this to be a conspiracy theory so much as Social/Political Science 101. As Bruce Hornesby puts it “Thats just the way it is – Some things will never change.”
Quote from: Jack on Today at 03:19:28 pm
“I love how much Americans are flipping out over the new leverage rates being put in place. They're talking like its' the end of Forex for them.”
I think it comes down to a knee jerk reaction. No one likes to have credit card limit lowered. But lets consider why are they increasing leverage requirements. Who benefits from leverage reduction? The trader, the broker, the banker, the regulators? And how?
If I remember correctly articles cited in this thread indicated that the unanticipated reaction to this announcement was a liquidity problem. Price gaped through stop losses and margin limits. No market maker would take the other side of the trades until user accounts were negative. The “system” failed. if the markets had remained liquid, positions would have either been closed at stop loss or when the account dropped to the margin limit (if not before). If you have a MT4 account your broker has an option called Account Stop out Level that they set in their MT4 server. It is supposed to prevent an account from going lower than its margin limit much less go into the red.
If a trader was holding a 2% risk position with a 30Pip stop in EURCHF before the announcement, I estimate that there exposure was $0.64 per pip per $1000 USD and a 1,570 pip drop would zero the account. (the actual drop was more than that before orders were closed). The effective leverage on the account would have been about 6.4:1 (which I understand is in range with the generally accepted range
of 5:1 to 10:1). and lees than Oanda's recommended leverage cap.
The only benefit to me as a trader is that if I have a losing trade in an orderly liquid market, the lower my leverage is the less money I will lose. In the case above perhaps a $1000.00 account would have a balance of $320 (20:1) instead of $64(100:1). However a 68% loss would still mean the account was to small to trade effectively
The Broker’s and Bankers “benefit” is that they are less likely to be left holding a large empty bag like FXCM did. The disadvantage to both is that the hi leverage provides them with more potential profit from retail traders. Individual traders often have repeated blow ups.
The regulators get to do something to address the problem with out solving it. They get to look good.
This is very important to them.
Quote from: the Golden Gun on Today at 06:27:31 pm
“But what if you don't want to keep the majority of your money with an online retail forex broker? Sometimes it's not about wanting to trade risky, it's about wanting to protect yourself from the brokers themselves “
This is the important question I ask myself. Can I swim with the sharks without being eaten?
Out of curiosity I modified an indicator to display Mt4 server info on account stop out and leverage
It is attached below
I wasn't praising the restrictions in place, I was just commenting that Canada already has it worse but we seem to be doing ok.
That said (and this is not directed at you, but just ranting in general):
Hedging in FX on the same pair (or Nedging, Noobie-Hedging) is bullshit and only helps the broker rank in more revenue. If you view your trades in terms of "net exposure" instead of individual tickets/trades, you'll end up with the same result (P/L) as a non-hedging account over a series of exposure changes, only you will always come out a little ahead thanks to not paying the extra round trip spread and/or commissions involved.
The only reason retail FX traders have it shoved down their throats is because MT4 itself is a ticket based order system (meaning two tickets/orders are treated independently on the accounting side of things and not grouped into 'net positions',) which allows for opposing positions to be held at the same time, and brokers then exploit this "feature" with unsophisticated traders to help generate more activity.
And further, it's not even a traditional 'hedge' anyway.. at no point would you ever see a professional trader (on any other market) talk about hedging risk by opening up an opposing trade they'll manage independently of their core position on the exact same security. If they reduce their next exposure in a given security, they call it pairing off risk, and do so by closing part of their position. A real hedge is done in a related, but different, security.. it can be related by being a derivative, or in the same industry, or in the same asset class, or affected by the same market forces.. but it isn't the same security.
Like... no one buys a metric shit tonne of FB (Facebook) stock and then go "crap, I need to hedge this out, I better short FB on the same account." That wouldn't make sense. They might buy a put option on FB, they might pair off risk by selling some of the FB they have, they might even short some LKND as a weaker peer... but all of these are on different 'securities' than the common FB stock itself.
So when we talk about blocking the act of hedging on the same pair in FX as a consumer protection, it actually is a consumer protection.. it prevents the broker from marketing an action that has ZERO upside for the user and can only prove to increases the revenue the broker generates.
As I said in the first part of this rant: If you break everything down to a "net exposure" basis between an account that hedges and an account that doesn't, and then treat it all from an accounting point of view (resulting P/L from the same actions taken to adjust net exposure,) the non-hedging account will always win out since it will have at least one less round turn of spread or commissions to be paid for the same changes in exposure over a series of trades.
(I have another rant about how FIFO is also just an accounting thing and has little material impact on traders.)
It's been proven by a few brokers and independent authorities that lower overall leverage and larger working capital are correlated with having a higher chance of being profitable overall.
A broker that isn't interested in being on the other side of their client's account as the client blows up, and clients who treat trading FX like a proper vocation / investment instead of just a big casino, both benefit.
It's the brokers who want to profit from their clients losing, and gambling culture infused clients who see FX no different than the pony races, who push hard for more leverage and such... Heck, there's an entire CFD industry in the UK based solely on giving their clients enough rope to hang themselves, and dealing the risk on every one of their clients trades in the process. They'll say they hedge out of client's risk, for appearances sake, but that's costly and isn't as profitable so they hardly do it. (I know multiple traders who've been given "thanks, but no thanks" letters from CFD brokers in the UK because they were consistently profitable and the broker couldn't make money off them. These are brokers who project 'integrity' and 'institutional grade service' in their marketing material.)
This is a great counter-point.
In Canada, we have CIPF protection (deposit insurance) up to $1 million per person. The CIPF fund is contributed to by all institutional members and is well over-funded at this point so it's pretty secure. So in this respect, at least in Canada, we're covered should we have to deposit more in a broker.
I'm to understand there's no such protections in the US for most FX accounts. Perhaps that should have been enacted along with restrictions that force people to put more capital up with a broker.
Another counter-argument along the same lines would be about capital efficiency and not wanting to tie up more capital than is needed for a given trade (kinda like how Options are marketed toward traders as "capital efficient"..) To this end, I'm mixed..
The "Big Picture" is a statement of how desperate and cut-throat the industry has become. Why else would you advertise the ability to open an account for "only $1"? This is blatant bottom-feeding. They know the more underfunded we are, the better their probabilities for tapping into desperation and indiscretion.
Jack, I was using sarcasm to ridicule the notion of a "nanny State" and how such "nannyism" can gain it's own momentum and how such an approach from politicians flies in the face of democracy, a little like Prohibition in the United States 1920 -1933.
Serenity, not only one dollar accounts, we have 'bonuses' of all sorts for new business from added percentages to your start up deposit, to extra money for hooking in (referral) a friend. Yet others are offering 'free' trading, lose so much in a week and they will replace it, provided of course that you over traded.
You can trade a live account right down to almost zero providing the stop is really tight.
Oh, they will give away free education, all the usual stuff, usually the providers are 'pro traders' you know, just so as the new guys know what they are doing.
Anyways, on second thoughts, maybe we do need protecting from ourselves
LOL. When I first got in this game, I quickly realized the broker education was actually customer assimilation followed by annihilation. "Please place your money at these fib levels and we'll take out your stops up here. For those of you too dumb to put your money at the right fib levels, we've provided a handy indicator that actually tells you when to give us your money.".
Serinity, you are even more cynical than me, but there is wisdom in your post.
What most guys now call 'brokers' are not 'bucket shops' of old as identified by Wyckoff, they are much more sophisticated in the current market.
Learner traders try their best, we learn, learn, learn ... we seek not a holy grail (dislike that terminology), instead we seek what is that makes money, what it is that is success.
Reality is that what it is that we seek is not provided by a bookmaker, run fast when we see the word 'secret', what we seek is so simple, usually so simple that we disregard it.
I will choose the most recent example - USD and it's rise - all the 'educators' told us learners that the thing to do is reach for the overhanging fruit, i.e. to buy USD - upcoming Retail sales numbers are of no consequence, the PA say buy - and so we bought...
Separate names with a comma.