Could the U.S.A be this stupid? It appears the U.S.A is on a fast tract to be at the bottom of the world. Why? Congress is trying to protect the people but what is really has happend is Congress and the other branches of government are making anyone who wants to do business in the market go offshore! Not protecting the U.S. Citizen the Congress is hurting the U.S. Citizen buy their extremaly stupid laws like Dodd Frank!
Example how Dodd Frank is forced on the U.S. Citizen in what should help the common U.S. Citizen but acually hurts the U.S. Citizen! I am going to use Forex Markets as the example but this can be any market. Houes, Cars, Boats, Airplanes, Land, Stocks, Indexs, even stuff like cattle!
Forex is not futures, stocks, indexs or any other kind of market! There’s absolutely no reason to have FIFO as it should never be use in any market. Lets say a computer is doing algorithmic trades and has 100, 200, or 300 orders on an account. Exiting positions in the exact manner that they were entered, in such situation, is impossible. Why should any trader have to exit positions in the same order as they were entered? (Example: Lets use Hotel analogy, Trump owns 12 hotels, some are profitable some not – why should Trump sell the 1st hotel built – and not just the 3 losers? If you told that to a business person that would say you are nuts / crazy! Or lets take a person buying house and renting out / selling houses. Person buys 5 houses in order from 1 to 5. House 1 has lots of problems and the area is going down. House 2 has terminate and need lots of work. House 3 just need some minor work and the rent market is good! House 4 has no problem and can be rented right away and people are wanting to rent it. House 5 you have people lined up to rent the house as is. With Dodd Frank you can not sell house 1 because you haft to sell house 5 first then house 4 then house 3 then house 2 and now you can sell house 1. Not possible to make money in the housing market if you haft to live by Dodd Frank but people in the market haft too. No one can not work with FIFO. This is why you hear about so many things on the news about offshore. Here is one of many reasons why one is forced offshore! Could be hotels, houses, cars, boats, etc. This is not helping the U.S. Citizen. If it is then the people who made this law need to start selling what ever kind of drugs they must be taking, because no one in their right mind would ever force this on any citizen of any country!)
Increased leverage IS NOT correlated to increased risk. The regulators force members to say that an increase in leverage is an increase in risk. This is mathematically and logically incorrect. Increase in leverage MAY increase risk, however it is NOT CORRELATED! For example, if your use of the leverage is for hedging purposes, in this scenario, increased leverage DECREASES risk. There are few hedging possibilities for multi-nationals in USA (such as vanilla options), Spot FOREX remains the only hedging option for many small businesses. This may be as simple as opening an Oanda account and taking opposite positions against accounts receivable. In such a scenario, the profit or loss from such a position is a wash against the real business money flows, in which case, a high amount of leverage can be useful. The decrease in leverage was a knee-jerk reaction to quell the rampant fraud, but the real effect was simply that most of the people and companies simply moved their accounts to London ( OFFSHORE). The decrease in leverage has no economic benefit, doesn’t serve any purpose other than forcing billions or trillions of dollars outside of USA! The argument that 500:1 leverage is for gamblers is very weak, these people don’t understand FOREX. In the stock market it might be ridiculous, however FOREX doesn’t move that much. In a typical week the EUR/USD may move 1% or 2% – in extreme cases up to 5%, such as during Brexit when the GBP/USD moved 9%. Compared to any other market, this is very small. The brightest example provided by Google (GOOG) which is up 1,415.39% since IPO. This is an impossibility in FOREX – if the EUR/USD is up 50% in a year, it will likely be down 50% the next. Currencies have a tendency to revert to the mean, and even when they trend, the changes are slight on a percentage basis. For this reason, if a small degree of leverage was used as in stocks, it would be impossible to ever turn a profit by trading FOREX. And, incidentally, increased leverage will support the Fed’s QE program as Liquidity Providers (LPs) extend credit to US Dollar markets they are effectively creating credit. The current leverage policy on FOREX is contrary to the Fed’s QE program. Also CFTC / NFA changing the leverage is just crazy. ( Example: You go in to buy a car and they tell you the price is 100K at 8% per year with 10 year note. You sign the paper to buy the car and next day the note people adjust 8% to 12% and move it from 10 year to 4 year note. This is not what you planned on or agree too. So this forces you to leave the car you just bought. This is what CFTC and NFA are doing today in the markets! Is this right for the U.S. Citizen or U.S. Company? You can not change the leverage daily, weekly or yearly. You can not invest on a constant moving target. )
The most ridiculous of all rules is the so called ‘hedging’ rule that prohibits being long (buy) and short (sell) the same currency on the same account. Regulators claim it’s a good rule because if you are long and short you are effectively flat, but it charges a fee (the spread) and thus, the rule saves money to customers. This is warped and twisted thinking ( again people are on drugs who are thinking this way ), incoherent and not based on reality – similar to their statement that “Foreign Futures is Forex” – no, Foreign Futures are. FOREX is Foreign Exchange of currencies, or spot trading, and NOT futures! FOREX is always traded ‘off-exchange’ by the nature of what it is. FOREX is a banking market, traded by interbank FOREX dealers – not on a futures exchange like the CME or NYME. What traders mostly complain about this rule – if someone wants to hedge, why not let them? If the brokers EXPLAIN to customers this flawed logic, that’s one thing – that’s acceptable but this should be free to make your own decisions not have the government make decisions for you! Make customers tick a box that they understand the potential for unnecessary costs- but allow them to do it! Because practically, when trading FOREX, you need hedging. This rule simply forced many strategies to stop working completely or move OFFSHORE like most of not all have done.
PAMM stands for Percent Allocation Management Module. PAMM is the FOREX equivalent of a futures ‘block account.’ The problem is for Forex managers, trading many client accounts as one. It’s a simple solution – independent software combines many small accounts into one ‘master’ account, which enables the manager to trade one account vs. hundreds or thousands of individual accounts.
Reduce the net-cap for RFEDS to a reasonable $5 Million if they are STP (Agent only). FXCM, Oanda, and Gain Capital have a Monopoly on retail FOREX. And, even though FXCM has been under DOJ investigation, hundreds of client lawsuits, countless fines from the CFTC, NFA, and other regulatory bodies, hundreds upon hundreds of customer complaints; they continue to be one of the few options for retail traders which practically, is no option. If you are left in the U.S. then you have no option but deal with the lowest of the low. How is this good for U.S. Citizens or U.S. Companies removing the options of the market place? The chances of making money at FXCM are slim to none, as they say in FOREX you have 2 hopes; no hope and Bob Hope. FXCM takes screwing the customer. This rule should either be completely removed or dropped way way down. More like removed completely!
The NFA is no more an FOREX regulator than FINRA. FOREX should be regulated on a banking level, perhaps by the Federal Bank. It was thought that currencies are financial commodities, and since FOREX futures were already offered at the CME, the CFTC seemed to be the natural regulator for FOREX. A currency is not a security, but it does meet the definition of a security if you invest in it (why no one has a good answer because at the base it is not a security it is MONEY). Although the IRS considers investment in foreign currency as debt under some rules; some investors will place their funds in a currency with the intent of appreciation of capital. Or to put it differently, they are afraid of the deterioration of value of their domestic functional currency. This was obvious before “Brexit” when lines formed outside of banks from customers who wanted to exchange their British Pounds for US Dollars, Euros, and Swiss Francs. In any case, the securities business is in many aspects far more complex than commodities. Securities brokers, broker dealers, and other FINRA licensed organizations are also under far greater scrutiny, have higher costs of compliance, have more compliance related staff, etc. Why keep their noses out of the feeding trough? Bottom line there is no reason for CFTC and NFA to be here. Everything CFTC and NFA should be done by SEC and most of CFTC and NFA is far over reaching should be eliminated. No reason to keep CFTC or NFA.
There isn’t any law that strictly prohibits a retail U.S. Citizens or U.S. Companies from opening a foreign FOREX account. However, since many larger institutions in general are afraid they will be “Swissed” hitman style by goons as described in Confessions of an Economic Hitman, they simply do not allow U.S. Citizens or U.S. Companies to open accounts. U.S. Citizens or U.S. Companies have become non-grata in the FOREX world (third class people). U.S. Citizens or U.S. Companies can not even visit their websites! In order to allow the foreign brokers to fairly compete with new U.S. Broker upstarts, this practice should be stopped. If the tax code is to be overhauled, visit FATCA and specifically, make FATCA reporting easy and simple; most importantly for institutions. TD Ameritrade doesn’t whine and complain about issuing 1099s at the end of the year – it’s mostly automated. It’s been “Turbo Taxed” by accounting departments. It should be just as easy for foreign institutions to report U.S. Citizen or U.S. Company taxpayer obligations. Oh and by the way – this will also stop foreign non-reporting of income, which previously was a big black hole! I understand IRS wanting all the tax money possible and everyone should pay taxes on all income they make!
Practically, the majority of rules only apply to retail investors which in today’s environment, means 99% of the population. The rules don’t apply to the one per centers or in FOREX LINGO QEPs, ECPs. Leverage still applies, but ECPs can easily open accounts in London, Singapore, and Sydney legally and circumvent all these rules which are guaranteed to choke any U.S. Citizen or U.S. Company!
The reasoning was, that because FOREX frauds used these tools, they should be eliminated. But this is severely flawed logic that would never work in the real world – that would be like saying, let’s bomb a village because one or two criminals live there. Dodd-Frank in general has not cleaned up a lot of the fraud, just made it worse. Thank you for hurting U.S. Citizens and U.S. Companies! Now the law should be removed not strengthen so it can be used to harass legitimate traders and investors, regulators should invest in fraud prevention tools. The list here can be very long. Some suggestions:
A managed reporting system such as the NFA uses for RFEDs like FORTRESS but for CTAs, Hedge Funds, and other CPOs who choose to participate in the verified reporting system. Sites such as myfxbook.com and fxblue.com provide this service technically to traders – but there is no auditing function. One of the largest frauds has to do with financial reporting, more specifically, the misreporting of performance numbers. The solution is very simple – a centralized reporting system that automatically captures performance data (there are only so many trading venues) and ‘verifies’ these numbers are true and accurate, and also can return statistics such as peak to valley draw downs, etc. Each product can have an ID, similar to an NFA ID, where investors can check in an official database, which is secured and encrypted, all the numbers. Building such a system is extremely cost effective, it would reduce regulatory costs as well, reduce fraud, and boost investor confidence. In fact, it would cause foreigners to invest in USA. Something like this doesn’t exist in Europe. Let’s bring that money into USA, support our markets, support the economy. Wall St. and Chicago should be the trading centers of the world – not London. What happened to the American Revolution, that 200 years later we’ll regulate and tax our financial businesses out of America and back to the British? WTF
What would be the effect on the markets if these suggested changes were implemented?
There would be competition in retail FOREX – this would make trading better, as competition in any market does. There was competition in the US before Dodd-Frank and in the legitimate FOREX world (discounting the fraud) there were many legitimate companies that had a good offering.
Billions of dollars it not Trillions of dollars would flow back to USA to be held by institutions in New York, Chicago, Charlotte, Los Angeles, and others.
Instead of a new growth industry of algorithmic FOREX taking off in foreign countries, it would happen right here at home in Charlotte, Chicago, New York, San Francisco, Atlanta, and in other trading centers.
Stabilization of FOREX markets in general; this will be nebulous to quantify, however it’s not difficult to surmise, that if there is more competition, more volume, and less fees – that the FOREX market will be more stable. Because the US Dollar is the world’s reserve currency – that’s really important! Also, it is critical that the United States take a global role in administrating FOREX markets, because of the USD world reserve status.