Thursday, September 30, 2010

I Wish the Government Would Stop Trying To Help!

They just keep making things worse with all their helping.

I really wish the government would keep their hands out of my pockets! They have enough of my money, they don't know how to spend it and now they want control over how I spend what little they leave me.

Last year I moved my Forex account to Europe because of the new rules imposed by the US such as no hedging, and FIFO (First in First Out) rules.

Now today I get notified that my trading company can no longer provide service to US customers due to the Dodd-Frank Act and CFTC Regulations. My only option is to trade in the US with their new stupid rules that are supposedly to "protect me".

FIFO has never made any since to me. I don't mean I don't understand what it is. I've had/done accounting. I just believe you should be able to buy and sell your stocks or currencies at will. Not have the government tell you which ones you have to buy or sell.

Hedging: for those of you, who don't trade, it is the process of buying and selling the same currency pair (for example) at the same time. Say you buy 1k EUR/JPY you want it to go up to make money, right? Well say the market starts going down and your losing money. With hedging, that allows you to sell 1K EUR/JPY to either counter act the trade or to get out of the trade making money instead of losing money, provided you've learned to do this correctly, it can be a little tricky. The US says you can no longer hedge. So now you have a trade that is losing money, your options are to take the loss or dump more money into your account and hope it turns around. Does this sound helpful? NO without hedging either way taking the loss or dumping more money into your account means more of your money is tied up or lost. Not helpful.

The newest change is the 50:1 margin requirements. For the non traders, I'll use the EUR/JPY as an example again. To trade a 1k lot of EUR/JPY currently requires $3.75 of margin. This is not a fee, it is just money set aside for the trade so your account doesn't go below zero. Say you have a $10.00 balance in your account you start a trade it starts losing money, once the loss is greater than $6.25 your trade is closed (a margin call) and you have a balance of $3.75 in your account. I've always thought this was kind of cool because it means you can never lose more money than what is in your account. No one is going to come and take your house or your car like in the movies. This also means the trading company doesn't have to track people down to collect loses. A Win Win on both sides. I have no problem with margins. The current margin rates were working just fine. I have no earthly idea why Dodd and Frank think the margins needed to be increased by almost 10 times the current rate.

This new Dodd-Frank Act has required that margin requirements increase. So instead of a $3.75 margin per 1k lot it is now $30.00. Now at first glance one might think that's not too bad. To a trader that is significant.  If you are considering trading 10k instead of 1k now you are looking at putting up $300.00 instead of $37.50. That is quite a bit of a difference. Now we're talking about having to leave larger amounts of money in the trading account just to be able to trade. You don't earn interest on money used as margin the bank/trading company holding the money does. This means once again the big companies are getting the money. That kind of money could be sitting in my bank earning interest (little that is now days) instead of theirs. Now I'm small time can you imagine the amount of money this is going to cost the big time players? I wouldn't want to be someone that does this for a living.

The trading companies do have a fee for each trade. I can see where I and others will be making fewer trades because of the higher margin requirement, which means the trading companies are probably going to lose a massive amount of money.

Years ago when I first discovered trading, I had downloaded a demo account to learn how all this worked, and the company that I had downloaded the demo from went bankrupt. So now this is a concern as well.

All trading companies warn you of the risk of trading. There are disclaimers everywhere. Traders know and understand the risk. We don't need the government to protect us from ourselves.

I'm a small time trader, and I'm not alone there are a lot of individual's sitting at home in front of their PC's day trading currencies to make a few extra bucks. Most are not trying to get rich; they are just trying to make a little extra money to get by.

All of this government "help" isn't helping!

France is looking pretty good right now.

Good Trading Check
Free Education Check
Free Healthcare Check

I'll have to check the weather in France.

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