NFA Voices Leverage Concerns

On the 30th November, the National Futures Association is introducing new margin rules that are primarily intended to provide increased protection for Forex Traders against the dangers of leverage.

This will be done by all Forex Brokers collecting increased margin deposits of 1% of the notional value of the positions held in the US dollar, British pound, the Swiss franc, the Canadian dollar, the Japanese yen, the Euro, the Australian dollar, the New Zealand dollar, the Swedish krona, the Norwegian krone, and the Danish krone and 4% of the notional value of other positions.

Presently, Margin Accounts are readily available that provide leverage of 100:1 or more that enable smaller players access to reasonable profits.

However, high volatility and leverage is a dangerous combination that can easily desecrate the accounts of the unwary very quickly. The NFA has determined that Forex traders who use conservative leverage, whilst trading more stable currency pairs, fare much better over the long haul than those who embrace higher risks.

By trading with less leverage, a trader can reduce the risk of a big drawdown from one bad trade.

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