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The CFTC Rule and Its Implications for U.S. Retail Forex Traders

|Includes:DIA, EEA, GBB, GOLD, JYN, QQQ, SPDR S&P 500 Trust ETF (SPY), UDN, USD

Aug. 31, 2010 ( - Effective October 18, 2010, the final rules of the U.S. Commodity Futures Trading Commission (CFTC) regarding off-exchange retail foreign currency transactions will be the law of the land when it comes to Forex trading in the United States.

The main goal of the new regulation is to protect retail U.S. investors from what, according to the CFTC Chairman Gary Gensler, is “the largest area of retail fraud that the CFTC oversees: retail foreign exchange”.  

The CFTC rule establishes a new category of registrant- Retail Foreign Exchange Dealers (RFEDs). All counterparties offering retail foreign currency contracts will be required to be registered either as Retail Foreign Exchange Dealers (RFEDs) or as Futures Commission Merchants (FCMs).

Tapping into what has been a largely unregulated area, the CFTC regulation will now require “persons who solicit orders, exercise discretionary trading authority or operate pools with respect to retail Forex to register, either as introducing brokers, commodity trading advisors, commodity pool operators (as appropriate) or as associated persons of such entities”. This means that such persons will need to pass exams such as Series 3 and Series 34.

With the new CFTC rule, retail Forex traders will see leverage reduction of 50:1 for the majors and 20:1 for exotic currency pairs. The required minimum security margin deposits will be 2% for positions taken in the major currencies and 5% for all others. The CFTC and National Futures Association (NFA) will have the ability to review these levels and make adjustments, if deemed necessary.

For more information and to see the official CFTC press release, please visit:

Disclosure: No Positions

Disclosure: No Positions