Question from Kevin Wong: Do regulators threaten retail Forex trading? How do they affect U.S. residents and non-U.S. retail traders?

Posted by Mario Sant Singh 26 December 2012 0 Comment

I received an email from Kevin Wong who wrote:

Hi Mario,
Will the new regulations by the U.S. Commodity Futures Trading Commission’s (CFTC) / National Futures Association (NFA) / Dodd-Frank Financial Regulatory Reform Bill on leverage, etc., affect non-U.S. based retail traders?

Do regulators threaten retail Forex trading? How do they affect U.S. residents and non-U.S. retail traders? I’m worried that we are heading towards a one-world currency. Can the U.S. Government control the Forex industry? If so, how long will it take before it affects us? I’m from Malaysia and will be a full-time Forex trader in a month.

Is this the end for retail Forex traders in or out of the U.S.?

Please advise. Thank you.

I think your core question is: Will the foreign exchange market be around for the next few years, since you intend to trade the market full-time?

The U.S. government tried tightening financial market practices through various legislations since the Global Financial Crisis (GFC) in 2008. This made it increasingly difficult and frustrating for Forex brokers to operate in the U.S. As a result, many brokers, such as FXPRIMUS, shifted their operations out of the U.S. to countries like Mauritius that are licensed and regulated by the Financial Services Commission (FSC).

This is also an advantage to brokers as non-U.S. based traders, since U.S. legislations do not apply to brokers if they operate outside the country. Unfortunately, U.S. residents will not enjoy this advantage. Retail Forex trading outside of the U.S. is booming and the ASEAN region experiences the fastest growth. I expect continued growth in the coming years.

I cannot foretell the future, but I can say that going into a one-world currency is highly unlikely. Do you know how long and difficult it was for just the Euro Zone to adopt the single currency EUR? Having one currency for the entire world is highly improbable. However, currencies were historically backed by real assets like Gold until 1971, when U.S. President Richard Nixon removed the United States Dollar from the Gold standard. This effectively plunged the rest of the world’s currencies in fiat currencies. Theoretically, that was how the foreign exchange market was born and has been around for the past 41 years.

In recent times, there are renewed calls for the return of the Gold Standard. Although I see this as very unlikely, I cannot write-off the possibility, especially when major economies use their best efforts to revive economic growth via monetary stimulus. This leads to inflation, and perhaps hyperinflation, in the long run. As currency worth decreases, demand for real assets like Gold and Silver rise. This may set off a chain reaction that could lead to some level of Gold Standard. In theory, this may spell the end of the Forex market since currencies may not freely float against each other.

On a side note, I do not recommend you become a full-time trader. There is really no need to, unless you intend to be a scalper and trade on very short time frames. You can trade profitably on higher time frames and still keep your day job. In fact, I discovered that many traders actually trade better when they have a job, since stable income gives them a sense of security that monthly expenses are covered. They trade better with less stress. You shouldn’t aim to trade for a stable monthly income (although that could be your goal). The market is unpredictable and you will have losing months. I encourage traders to have a yearly profit target instead of monthly. Their profit should supplement their job income, not replace it.

To your success as a profitable trader,