FAQs: Trading with Reduced Leverage
Back to Trading with Reduced Leverage
Q: What is the new NFA Regulation regarding Leverage?
A: As of November 30, 2009, the NFA will implement amendments to the Financial Requirements Sections 11 and 12. The new admendments will require Forex Dealer Members ("FDMs") to collect a security deposit of 1% of the notional value for specified currencies and 4% of the notional value for all other currencies. The intended purpose of this new regulation is to protect over-leveraged traders and brokers alike.
Q: What is the rational for reducing leverage?
A: The intended purpose of this new regulation is to protect over-leveraged traders and brokers alike.
Q: How will the reduction in leverage impact my GTS Trading Account?
A: Effective November 30, 2009, the NFA’s new regulation will limit leverage to 100:1 on the ten major currencies and 25:1 on all others. As a result, it is possible that open positions with insufficient funds may receive a margin call and all open positions will be closed.
The majors include:
British Pound (GBP)- Swiss Franc (CHF)
- Canadian Dollar (CAD)
- Japanese Yen (JPY)
- Euro (EUR)
- Australian Dollar (AUD)
- New Zealand Dollar (NZD)
Q: I have a GTS Account, how can I keep higher leverage?
A: While using low margin requirements can sharply increase the percentage profit or loss potential, FX Solutions is able to provide an alternative to the reduction of leverage regulation.
Non-US, FX Solutions customers have the option of continuing all current functionality by seamlessly opening an additional account with FX Solutions Australia or FX Solutions UK. These alternatives will allow you to:
- Maintain leverage up to 400:1 on Forex and up to 200:1 on Spot Metals†
- Continue to trade on a ticket-based system
- Place stop loss and limit orders on individual trades
- Utilize Hedging functionality††
To open an account with FX Solutions UK
https://online.fxsol.co.uk/ExistingAccount/
NOTE: At this time, residents of Canada (British Columbia and Quebec residents), Gaza Strip, Liberia, Midway Islands, Myanmar (Burma), Palau, Palestine are not eligible.
To open an account with FX Solutions Australia
https://online.fxsol.com.au/llc-au/Individual/index.aspx
NOTE: At this time, residents of Canada (British Columbia and Quebec residents), Australia, Balkans, Belarus, Bulgaria, Burma, Fiji, Lebanon, Liberia, Macedonia, Pakistan, Sierra Leone, Somalia, are not eligible.
**Please be advised that FX Solutions cannot guarantee the exact date of transfer.
Q: How are FX Solutions UK and FX Solutions Australia related to FX Solutions LLC?
A: FX Solutions UK, FX Solutions Australia and FX Solutions LLC are owned by City Index Limited, which is a UK based firm regulated for the conduct of investment business in the UK by the Financial Services Authority (FSA).
- FX Solutions UK is a trading name of City Index Limited, is a company registered in England and Wales which is authorized and regulated by the Financial Services Authority (FSA).
- FX Solutions Australia is included within the City Index Group with respect to all financial reporting and capital adequacy requirements under FSA rules. FX Solutions Australia is registered under the business name of IFX Markets Ltd. a wholly owned subsidiary of City Index Group, and is authorized and regulated by the Australian Securities and Investments Commission (ASIC).
Q: Where can I get more information regarding the NFA rule change?
A: NFA's submission letters to the Commodity Futures Trading Commission include of the revised language and more detailed descriptions of the changes. You can access electronic copies of the February 23, 2009 submission letters; Section 11 and Section 12 Additionally, you may contact FX Solutions directly at nfa243@fxsol.com
†FX Solutions asks that you consider the risks associated with increasing your leverage. A relatively small market movement will have a proportionally large impact on the funds you have deposited or will have to deposit; this may work against you as well as for you. You may sustain a total loss of initial margin and you may be required to deposit additional funds to cover a short margin position.
††When employing hedging as a trading strategy, traders should be aware of the costs associated with offset trading. Although hedged trades are opposite of each other, the trades will be treated as independent trades. Traders will pay the entire spread twice (buying at the high end of the spread and selling at the low end). Additionally, at the end of day, rollover/interest policy applies to both trades involved in the hedge; this may result in paying or in some cases receiving interest on both the long and short position. A hedged trade may limit your ability to benefit from market movement.
††When employing hedging as a trading strategy, traders should be aware of the costs associated with offset trading. Although hedged trades are opposite of each other, the trades will be treated as independent trades. Traders will pay the entire spread twice (buying at the high end of the spread and selling at the low end). Additionally, at the end of day, rollover/interest policy applies to both trades involved in the hedge; this may result in paying or in some cases receiving interest on both the long and short position. A hedged trade may limit your ability to benefit from market movement.