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Category forexCategory: Forex / FX

New Footprint That Automatically Detects Large Volume

MarketDelta released a beta version today of MD Charts that has a new Footprint type called Delta Imbalance. It automatically detects and shades high volume levels based on the bid and ask volumes. It uses a new methodology for comparing the bid and ask volumes to one another. Read more about it on the MarketDelta blog. I would recommend following the MD blog as well since they post things other than just Footprint related information.

MarketDelta Adds a Trading Room

For anyone interested in learning more about the Footprint and especially how to apply it to trading, MarketeDelta recently launched live trading room.

The room offers is very well suited for anyone looking to learn more about applying the Footprint, see and hear how a professional trader analyzes the market, and how a professional trader manages a trading position. For $99/month this is a great value.

Forex Footprints Revealing Opportunties

MarketDelta recently posted an article on how to setup Footprint charts for forex (currency pairs). I have mostly only plotted futures because I knew spot forex did not sent out volume with each trade, but what MarketDelta has done makes it now possible to plot a Footprint for FX markets.

THIS IS A GAME CHANGER FOR FOREX TRADERS!

Prior to this, forex traders only had price to trade off of. Now they will have the transparency to see where tick volume is occurring within the bar, any time frame bar I might add. See where there is light tick activity and where there is heavy tick activity. This will provide a very good indication of where traders are placing their bets.

Depending on the type of Footprint, another benefit is the delta coloring. This is based on whether the tick activity is occurring at the ask or on the bid, giving a very good indicator of order flow.

Here are a few examples pulled from todays trading.

Category: Forex

Www Forex Currency

You should be prepared to lose money during your first few months of trading. Since the development of the Web and intro to the general public, individuals have actually been using it to interact with family and friends. Always remember that there are no guarantees in Forex. Once you completely understand how Forex works, you can be sure that you can earn a lot of money in no time at all. The next thing you need to do is hire a firm that is available online that specializes on Forex trading. This will also prevent slippage.

It operates 24 hours a day and generates currency exchanges that amount up to 2 trillion dollars each day. Only multinational companies and financial institutions were allowed and it also required huge amounts of investment capital to start trading in this financial market. In the past, because the Internet was still in its infancy and the Forex market have strict sanctions and policies, regular people, such as yourself were not allowed to trade in the Forex market. All you need is a computer with a high-speed Internet connection, and trading software and youre ready. There is also a chance for you to lose money when you trade in Forex. Forex trading is considered to be a great money making tool that you can take advantage of.

Posted on Categories Forex

Forex Chinese Cari

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Software programs are recommended for experienced traders who dont want to spend money on Forex trading firms. Always remember that there are no guarantees in Forex. However, with the right skills, knowledge and strategy, you can minimize the risk and maximize your earning potential when you trade in this very liquid market. The first thing you need to have in order to start trading in the Forex market online is by having a fast computer with a fast internet connection. With the right skills and knowledge, you can really be successful in the Forex market and earn that money you have always wanted.

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Forex Signals In Tamilnadu

The Forex market is the largest and the most liquid financial market in the world. You not need to be inside the market floor to trade. With the right skills and knowledge, you can really be successful in the Forex market and earn that money you have always wanted. With the advancement in the Internet technology, it is now possible for people to trade in the Forex market. All you require is a computer system with a high-speed Internet connection, and trading software and youre ready.

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It operates 24 hours a day and generates currency exchanges that amount up to 2 trillion dollars each day. The online Forex trading firm will give you access on using their online software that is necessary for you to start trading. There is also a chance for you to lose money when you trade in Forex. With the advancement in the Internet technology, it is now possible for people to trade in the Forex market. Forex trading is considered to be a great money making tool that you can take advantage of. In the past, because the Internet was still in its infancy and the Forex market have strict sanctions and policies, regular people, such as yourself were not allowed to trade in the Forex market.

The Internet is among the most beneficial tools that you can make the most of today. All you need is a computer system with a high-speed Internet connection, and trading software and youre ready. If you are looking for a great fulltime career that you can do in your own home, you can consider the Forex market as one of the best career choices. Only multinational companies and financial institutions were allowed and it also required huge amounts of investment capital to start trading in this financial market. With the Web, you can chat for free although the person you are talking to is half way all over the world.

Here in this article we will deal with the top 10 banks which offer the highest Deposit interest rates in the NRE Fixed deposit sector.

Money Lan proides free NSE, NSE Futures and MCX IEOD data. Mr Kannan(Trichy, TamilNadu) is the owner of the blog currently residing in jabalpur, madhya pradesh.

Www Forex Currency You should be prepared to lose money during your first few months of trading. Since the development of the Web and intro to the general public, individuals have actually been using it to interact with family and friends. Always remember that there are no guarantees in Forex. Once you completely understand how Forex works, you

Posted on Categories Forex

Forex Tester Pro 1.0

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Forex Brokers In The Usa Forex trading is considered to be a great money making tool that you can take advantage of. In the past, because the Internet was still in its infancy and the Forex market have strict sanctions and policies, regular people, such as yourself were not allowed to trade in the Forex market. The Internet is one

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With the advancement in the Internet technology, it is now possible for people to trade in the Forex market. The online Forex trading firm will give you access on using their online software that is necessary for you to start trading. Forex trading is considered to be a great money making tool that you can take advantage of. The Forex market also opened up its doors to individual traders and brokers. The most important thing you have to consider in a trading software program is that it should allow you to gain access to the Forex market instantly. Always remember that there are no guarantees in Forex.

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Tax treatment for forex and deposit losses after SNB’s surprise policy change

January 17, 2015 | By: Robert A. Green, CPA

Webinar Feb. 10, 2015 at 4:15 pm EST - Learn More

If you are one of many who got caught on the wrong side of the forex trade when the Swiss National Bank (SNB) surprised the markets with a huge policy change this week, you probably incurred significant losses. Here’s a quick primer on how to handle these losses on your tax returns.

First, it’s important to segregate your losses into two camps: the forex trading loss (Section 988 or capital loss) incurred on your open positions that were liquidated or closed by you or your broker, versus losing a deposit in an insolvent financial institution (Section 165). The latter also happened to traders who made money on this market event.

Forex tax treatment

By default, forex trading losses are Section 988 ordinary losses, unless you filed an internal contemporaneous capital gains election at any time before this new trading loss was incurred. In that case, it’s a capital loss subject to capital loss limitations of $3,000 per year against ordinary income. With a capital gains election in place, if you trade major currencies and don’t take or make delivery, you probably use Section 1256(g) lower 60/40 capital gains rates.

If you qualify for trader tax status (business treatment), Section 988 losses are business losses includible in net operating loss carry backs and forwards. But without trader tax status, you’ll need other income to absorb the forex ordinary loss, because the negative income part is otherwise wasted. If you’re using Section 1256(g), you can file a net Section 1256 loss carry back election for 2015 to carry the loss back three years to offset Section 1256 gains in those years. (Read more about forex tax treatment in our Trader Tax Center).

Deposit loss tax treatment

Hopefully, other banks and brokers will rescue teetering forex brokers and not too many forex traders will lose their deposits in insolvent financial institutions. That would be unfortunate since there is no FDIC or SIPIC money-protection on forex accounts. If U. S. and foreign forex brokers fail, hopefully the firms have private insurance that pays out the deposit holders in full for their deposit losses. If there is less than full recovery of deposit losses through insurance or otherwise, sustained losses are subject to Section 165 tax treatment.

We addressed similar issues when we covered the MF Global insolvency and recovery efforts over the past few years.

Many investors, traders and hedge funds got sideswiped by the MF Global and PFG bankruptcies over the past few years. Unfortunately, futures and forex account holders are not afforded government protection like bank account holders with FDIC protection and securities account holders with SIPIC protection. Tax treatment is far better when the IRS declares the loss a “theft loss”and allows application of IRS Revenue Procedure 2009-20, originally enacted to provide tax relief for investors in the Bernie Madoff Ponzi scheme. Theft losses receive ordinary loss treatment plus acceleration of losses on tax returns. Otherwise, Section 165 applies to deposit losses in insolvent financial institutions like MF Global. Investors are stuck choosing between capital loss treatment, which may trigger capital loss limitations, or itemized deduction treatment with various restrictions and haircuts. Business traders with trader tax status benefit from business ordinary loss treatment. Taxpayers with Section 165 losses must wait for the loss to be “sustained”so trustees have ample time for fund recovery. MF Global futures account holders recovered their losses in full, although forex account holders may have some sustained losses. (Read our blogs. PFG investors can deduct theft losses on 2012 tax returns with Rev. Proc. 2009-20 safe harbor relief. and MF Global PFG Best deposit losses have nuanced tax treatment .)

I imagine bankruptcy trustees for these failing forex brokers will seek to recover funds from customers who incurred forex trading losses in excess of their deposits, unless the account agreements say otherwise. I also envision there will be arguments over who bears responsibility for excess losses, the broker or customer in cases where brokers liquidated positions and sometimes too late.

Disregard of CFTC rules

Many American forex traders disregarded CFTC rules (for retail off-exchange forex ) by trading with non-registered offshore brokers offering leverage far above CFTC limits of 50:1 on major currencies and 20:1 on minor currencies. Several offshore brokers and a few U. S.-based forex brokers are facing financial strain or insolvency as a result of offering excess leverage to their customers during the SNB shockwave. When markets are extremely volatile the broker and customer may not be able to exit a trade before incurring a significant loss well in excess of the customers deposit amount. Let’s see how the money protection issue works out offshore.

Why do forex forward dealers issue 1099s, yet spot forex brokers do not?

August 16, 2012 | By: Robert A. Green, CPA

Did you receive a Form 1099 from your forex broker or bank this year? If you traded forex spot, you most likely did not. Conversely, if you traded forex forwards, you probably did receive a 1099, the kind used for Section 1256 contracts, like futures. But, how does this affect your tax filings?

1099 rules

The rules state that a 1099 should be issued for forex forwards, treating them like Section 1256(g) foreign currency contracts. Those same rules state 1099 should not be issued for forex spot trading. Some taxpayers mistakenly think if they don’t receive a 1099, they don’t have to report anything. That is very wrong — you need to report your trading gains and losses and other income, whether you receive a 1099 or not. That includes income from foreign brokers, too. If the 1099 is wrong, you must report the correct amount. It’s best to ask your broker or bank to correct the 1099 when you identify an error.

Spot vs. forwards

Most online forex traders have accounts with retail off-exchange forex brokers, most of whom only offer trading in the forex spot market. Spot settles in one to two days, whereas forwards settle in over two days. Brokers use the terminology T+1 for trade date plus one for a one-day settlement.

Retail forex brokers are not direct participants in the Interbank foreign exchange market. Rather, they are customers of Interbank forex dealers, and they make a derivative market for retail spot traders. Some of these retail forex brokers square their books on customer trades, and net the difference in the Interbank market, while others simply behave like a “house,” acting as market makers for their clients.

Professional and institutional forex traders like larger hedge funds have access to trading directly with forex dealers in the Interbank market. These forex dealers offer well-heeled clients access to forex forwards and options in addition to spot trading. Because forwards settle in over two days, they require more credit from traders, as they are high-leverage activities.

Rolling spot contracts

A leading forex dealer offers a “rolling spot” trading program. Instruments traded in this program are treated like forwards for purposes of 1099 issuance. CFTC Chairman Gary Gensler called these contracts futures-like. We understand that other forex dealers offer similar trading products, too.

These “rolling spot” forex contracts don’t have a fixed settlement date, as they are open ended contracts. While technically they could settle during a spot term of one to two days, they primarily settle during a forward term over two days. This dealer says these contracts act more like a forward contract than a spot contract, and therefore they issued a 1099 for forwards. That called for using a 1099 for Section 1256g (foreign currency contracts), which requires reporting of realized and unrealized gains and losses. This forex dealer marked open positions to market at year-end, too. But, forex by default has Section 988 ordinary gain or loss treatment.

1099s don’t dictate tax treatment

It’s very important to note that Form 1099s don’t dictate tax treatment. 1099 issuance rules call for 1099s based on a default standard — investor status. One of our clients received a 1099 from this dealer showing a $100,000+ loss treated as Section 1256g. But this client never filed an opt-out election from Section 988 into Section 1256g. Does the issuance of this 1099 dictate the taxpayer’s tax treatment, or do his own facts, circumstances and elections dictate tax treatment? Good news, it’s the latter. See the example footnote below that we plan to include with this client’s 2011 income tax return. In this case, the client prefers Section 988 ordinary loss treatment, rather than Section 1256 capital loss treatment subject to the $3,000 loss limitation against ordinary income. Taxpayers don’t want broker-issued 1099s to force them into worse tax treatment.

Section 475 MTM traders don’t let 1099s dictate tax treatment, either

For over a decade our Section 475 MTM business securities traders report their trading gains and losses with ordinary gain or loss treatment on Form 4797, Part II. They mark open trading business positions to market at year-end and report them as well. This tax treatment departs significantly from 1099s issued for a default investor using the cash method of accounting. The IRS understands the difference.

Example tax return footnote for a forex client who received a Form 1099

Taxpayer received a Form 1099 treating his forex contracts like forwards (or forward-like). 1099 issuance rules state that a 1099 should be issued for forex forwards, treating them like Section 1256(g) foreign currency contracts. Those same rules say no 1099 should be issued for spot forex.

As agreed by the issuer of this 1099, Form 1099s do not dictate the taxpayer’s tax treatment, as the issuer is generally not aware of the taxpayer’s facts, circumstances and tax-treatment elections.

By default, forex spot and forward contracts have Section 988 ordinary gain or loss treatment. Traders holding these forex contracts as capital assets may file an internal contemporaneous “capital gains election” pursuant to IRC § 988(a)(1)(B) to opt out of section 988 and into capital gains and loss treatment. If such an election is made, then for forex forwards — and forward-like forex contracts, including spot forex in some cases — taxpayers may use Section 1256(g) (foreign currency contract) treatment, providing it’s in major currencies for which regulated futures contracts trade on U. S. futures exchanges, and the taxpayer does not take or make delivery of the underlying currency. See Treas. Reg. § 1.988-3(b).

Section 988 reports realized gains and losses only, whereas Section 1256(g) reports realized, plus mark-to-market unrealized gains and loss treatment at year-end, too. Section 988 is ordinary gain or loss treatment, whereas Section 1256(g) has lower 60/40 tax rates, with 60% a long-term capital gain, and 40% short-term capital gain treatment.

Taxpayer did not file an internal opt-out election from Section 988, and therefore he must report using the default Section 988 ordinary gain or loss treatment for realized gains or losses, only. If the taxpayer is an investor, he reports that ordinary gain or loss on line 21 of Form 1040 (Other Income or Loss). If the taxpayer qualifies for trader tax status (business treatment), he reports the Section 988 ordinary gain or loss on Form 4797, Part II ordinary gain or loss.

In order for the IRS to match the 1099 filed to taxpayer’s return, we report the Form 1099 (for 1256 contracts) on Form 6781 Part I, and next, we zero the same amount out off of Form 6781, so we can transfer the amount to the correct form and line of the tax return. Forex is reported in summary fashion, not line-by-line fashion as done for securities. The amount we transfer to the correct form and line is the realized gain or loss, only. Only Form 6781 includes year-end unrealized gains and losses too on a mark-to-market basis.

Bottom line

1099 issuance rules have always been confusing and misunderstood by taxpayers. When you receive a W-2, you simply report the tax information provided. It’s rare to find errors. Conversely, when you receive a Form 1099 from a broker or bank, you should not just report what’s displayed. You need to consider your own facts, circumstances and tax-treatment elections to report your correct taxable income, loss and expense. This year, securities traders face a barrage of problems with new IRS cost-basis reporting rules for 1099-B issuers. We are finding huge problems on these 1099s. (See our earlier blogs on this.) When it comes to taxes, take the control away from your broker and consult a trader tax expert when needed.

Is U. S. forex trading safe?

October 30, 2010 | By: Robert A. Green, CPA

Is forex trading safe in the U. S. even with RFED or FCM duly registered brokers with the NFA/CFTC? U. S. forex brokers dont have segregation of asset money protection rules, whereas futures brokers are subject to those rules. The new CFTC forex rules call for higher minimum net capital requirements for RFED forex brokers vs. futures brokers, so that helps cushion the concern about money protection issues.

For warnings about hidden problems with forex brokers, see Erskine vs. CFTC 06-3896. The CEO of Rockwell Trading brought up this court case and discussed his concerns about forex brokers and their platform markets on our Oct. 27 Webinar. The CEO focused in on this quote in the case: This forex market, which is central to this case, is not a public market, but is instead a negotiated market, in whichaccording to the partiesforeign currency prices (the prices used for the trades in this case) are “constructed” by the FCMs using “software to process and distill currency prices offered by numerous banks and come up with an indicative market price.”

As I said on that Webinar, keep in mind that this court case occurred before the new CFTC forex brokerage rules went into effect on Oct. 18, 2010. The retail forex industry should be run better with the new rules. Later in the call, we circle back on the segregation of asset rules; we will try to do more research on it for next week.

We noticed a troubling NFA news release dated Oct. 28, 2010 NFA orders $459,000 monetary sanction against New Jersey forex firm Gain Capital Group LLC. Read the text of the entire Complaint included in the release.

Heres another similar NFA fine of $320,000 against New York forex firm IKON Global Markets. Per the NFA release, The Complaint alleged that IKON engaged in certain price slippage practices on the MetaTrader platform that were favorable to IKON and caused disadvantageous trading conditions for certain customers. The Complaint also charged that IKON failed to supervise the MetaTrader platform used for their forex business, and failed to supervise the firms operations. I wonder if slippage practices are what Rockwell Trading CEO is warning us about?

The CFTC and NFA are scrutinizing forex brokers more now after their Oct. 18, 2010 effective date for RFED registrations in accordance with their new CFTC rules for forex transactions, sanctioned by Dodd-Frank Fin Reg too. The NFA website has several good new guides including Forex Transactions: A Regulatory Guide.

American forex traders are being forced to trade with no more than 50:1 leverage on the major currencies (20:1 on minors), FIFO (no hedging rule) and without any form of money protection. Because leverage with currency futures is not far off 50:1 (30:1 on the CME, for example), hedging may be easier with futures, and futures brokers must segregate assets for some protection. We will compare tax treatment between forex and futures next week. More forex traders may want to consider trading currency futures too.

Offshore retail forex trading accounts are being forced back to the U. S.

September 23, 2010 | By: Robert A. Green, CPA

New CFTC retail forex rules are going into effect exactly as we thought they would. Although were still waiting for more formal guidance from the CFTC and NFA, they both have improved their Web site sections on the subject.

Foreign accounts transferred back to the U. S.

Most U. S.-based retail forex brokers (not banks) are registering with the NFA as RFEDs. If they don’t register their foreign affiliates as RFEDs too, theyre automatically transferring all U. S. resident retail forex trading accounts back to their U. S. RFED firms, by the CFTCs Oct. 18 deadline. The trader has no choice in the matter.

Remember, the new retail forex rules do not apply to “eligible contract participants, which are large non-retail accounts defined in prior blogs and in the rules. Were noticing that more and more offshore brokers who first thumbed their noses at the new rules are falling into line and respecting the rules.

Foreign commercial banks unaffiliated with any U. S.-based FCM or RFED may have a 360-day extension from registering as a U. S. financial institution. We heard they may have 360 days from the date Dodd Frank Fin Reg was enacted (July 21). We have not confirmed this yet, though.

Dummy offshore corporations: Not a good idea

Even if you hear from some that the CFTC may focus its enforcement efforts against foreign unregistered intermediaries rather than on individual traders, it’s important to understand the CFTC considers evasion a “prohibited transaction.” Forming a dummy offshore corporation to open a retail off-exchange forex trading account with an unregistered offshore bank or broker is considered evasion, according to the CFTC. Attorneys, CPAs and financial advisors who suggest using dummy corporations to evade these CFTC rules may face challenges by their professional license boards and bars on infractions to their ethical codes of conduct.

If you are foolish enough to use a dummy offshore corporation in this regard, you still need to disclose your American ownership of the corporation to your foreign broker, who may deny the account treating it as an American-owned account. If you don’t make that “know the client” disclosure, the broker may have grounds to take action against you.

RFED U. S.-based forex accounts lack protection

Commercial banks like Citi FX Pro offer FDIC insurance protection and segregation protection in bankruptcy. Securities brokers offer SIPIC protection. Futures brokers don’t have any quasi-governmental insurance protection, but at least they have a segregation” of assets regime in a bankruptcy filing, which is a lesser form of protection.

The problem for RFED forex brokers in the U. S. is they don’t have a quasi-governmental insurance program and they can’t even offer futures segregation protection in a bankruptcy filing either. For this reason, some U. S. forex brokers previously suggested that their clients use their affiliates offshore. We heard that the UK offered some money protection on forex brokerage accounts.

In a bankruptcy filing in the U. S. (think Refco), segregated futures accounts have seniority over other creditors and equity holders, so futures account holders get paid first. The problem for forex accounts with RFEDs is that futures segregation regimes arent respected on forex accounts in bankruptcy filings because the rules refer to futures traded on exchanges and forex is traded off exchange. This is an oversight from Congress. This is not the case for commercial banks; only brokers.

A CFTC official told me he feels forex is still safer under their new rules with registration of RFEDs, minimum capital requirements, better disclosure and lower leverage. There may be some money protection issues in the UK, but working with an unregistered broker or bank and using unlimited leverage might make it more unsafe overall. Traders may have trouble and higher costs seeking remedies in foreign jurisdictions too. If a retail trader enters a prohibited transaction working with an unregistered RFED offshore, he may not have rights to use U. S. courts either. Some forex brokers in the UK and other jurisdictions may register with the NFA as RFEDs and then continue to offer money protection in the UK, although they will still need to adhere to the new CFTC rules on leverage and more.

Bottom line

If you trade retail forex off exchange, make sure your broker or bank is duly registered in the appropriate manner with the CFTC, as either an RFED with the NFA or a commercial bank (U. S. or foreign) with U. S. bank regulators. Both RFEDs and commercial banks may offer leverage up to 50:1 on the major currencies. Only the commercial bank may offer protection on your money. Skip the idea of setting up a dummy offshore corporation to work with a non-registered foreign broker or bank.

Can American off-exchange retail forex traders evade strict new CFTC rules by trading on offshore platforms?

September 1, 2010 | By: Robert A. Green, CPA

Congress and regulators have thrown the forex trading industry a huge curve ball and we are all scurrying to get answers to important questions.

Many questions remain regarding trading offshore to evade leverage and other constraints posed by the new CFTC rules. Today we try to answer a few more questions along these lines. The answers are still unclear, and we await new NFA guidance, which was promised to one forex dealer executive. A forex dealer executive told me the NFA may actually be waiting on the CFTC regarding the overseas issue, and he expects it will take more than a few days. The overseas firestorm is probably underway.

According to one leading forex broker executive, the CFTC author of these new retail forex trading rules said the Dodd-Frank (DF) change classifying financial institutions (FI) as U. S. only (see CFTC QA who can offer.. section) wont be made for 360 days from DF enactment (7/21/10). This gives EU banks offering forex trading to U. S. customers time to register in the U. S. But I think FI refers to banks and not CFTC-registered FCMs, which probably include the FDMs (forex-dealer merchants, the prior designation) too. The DF list has FI, SEC-registered and CFTC-registered companies, plus insurance companies and more. FI and FCM seem to be different categories.

So if this forex broker says its U. S. retail forex traders using offshore platforms from its affiliates have more time to close accounts, that may not be true in my view. If the foreign account is deemed a foreign affiliate of an existing CFTC-registered FDM, then using the 360-day extension seems inappropriate to me for financial institutions. If its a foreign institution such as an EU bank with no U. S. CFTC-registered FCM or FDM registrations, then maybe it’s okay to use the 360-day extension.

Hopefully the NFA and/or CFTC will clarify this important issue soon. There are plenty of people asking these important questions, as thousands of Americans have offshore retail forex trading accounts.

It makes sense to me that DF gives 360 days to foreign institutions to form U. S. affiliates if desired. To spring a prohibition on foreign financial institutions offering forex trading to U. S. customers as of Oct. 18, 2010 (the effective date of the new CFTC rules) would be extremely undiplomatic on a global country-by-country dealing basis. There may be lawsuits and diplomatic requests made and this takes plenty of time to deal with properly.

This type of financial transaction/trading protectionism is rearing its ugly head on several international stages already. The U. S. is upset about EU rules and proposed rules requiring U. S.-based investment advisers to register in the EU for a required passport to raise money from EU investors. This is a huge problem for the U. S.-based investment-management industry. EU banks are upset about new U. S. “FATCA” tax rules requiring EU banks to report to the IRS U. S. customers in their ranks. FATCA ties in with this FI U. S.-only forex trading rule too, as it can help enforce it.

According to the forex dealer executive I spoke with, the NFA plans to issue a notice to members perhaps today or in a few days to clarify DF and the new CFTC retail forex trading rules, mostly for implementation issues. This expected notice may not speak to the foreign trading issues, although hopefully it will.

One big implementation issue is how currently CFTC-registered FDMs (under CRA) go about converting their registrations to the new DF-category of RFED. Will this be automatic? How can FDMs make many changes in their registration by Oct. 18, the implementation date for the new CFTC rules?

This executive said many U. S. forex dealers currently use offshore platforms and affiliates for segregation of funds in the UK for asset protection purposes. He said if a person files for bankruptcy in the U. S. their UK forex trading account capital and rights are protected from U. S. bankruptcy courts. Leverage is unlimited in the UK, but usually 100:1. U. S. customers avoid the NFAs controversial hedging rule when trading in the UK. He said capital isnt a big issue because many U. S. forex dealers can absorb more U. S. customers to repatriate from the UK and other international affiliates. I presume leading forex dealers can move UK capital back to U. S. too as needed. This executive says non-residents (international business) may want to stay in the UK since the U. S. leverage is lowered to 50:1. He said U. S. platforms can handle things. The biggest concern is upsetting some U. S. clients who already set up foreign-based accounts and now may have to redo all the paper work back into the U. S.

U. S. FDMs in the forex dealer coalition are fine on these new rules per this executive. Most are already registered as FDMs and compliant with the NFA, and 50:1 leverage is reasonable in their view. They expect the RFED change to be fairly easy to accomplish.

I see a big problem for foreign forex dealers operating from tax havens. Most dont have U. S. operations or branches and they wont want to register in the U. S. Registration for foreign companies probably requires a U. S. operation, subsidiary or branch office designation. Branch office taxes can lead to trouble on Section 482 transfer pricing tax issues (where the profits are booked). If the IRS finds trouble with tax haven cheating, it can pounce on these institutions. Therefore, I presume many tax-haven forex dealers may lose forex trading business to CFTC-registered RFEDs who will be happy to win back this business.

Forex IB (Introducing Broker) CFTC-registration changes are important too. The final rules are better than expected from the proposed rules. With final rules, a forex IB can simply register with the NFA on its own in the same manner as futures IBs do now. They dont need that troublesome (proposed rule) guarantee from an FDM, although they have that choice too. Few FDMs want to take that kind of risk or tie up their capital by guaranteeing a forex IB.

There are many characters in the forex industry that inappropriately blur the lines between education, investment advice, money management and other related services. Many of these forex players may be drawn into registration in some capacity with the NFA and CFTC, perhaps as an IB, and many will want to avoid that registration for many different reasons. Some may have trouble passing NFA back ground checks. Others dont want the NFA oversight over their perhaps fraudulent or inappropriate business models. Many dont want to be burdened with other rules like disclosure and reporting. Many will surely have trouble with the conflicts of interest rules too.

My colleague Brent Gillett, JD and his associate at the Investment Law Group wrote an article on these rule changes. It includes a nice history of regulation (or lack thereof) of off-exchange retail forex, the new registration categories and how it works. Its a good primer on the subject.

The attorney and author of this article said to me via email: I spoke with an attorney at the CFTC Monday who is dealing with these rules. His interpretation was that because of the change to the CEA by Dodd-Frank from financial institution to “U. S. financial institution”, overseas forex intermediaries that are not registered as FCMs or RFEDs will not be able to serve as counterparty to U. S.-based retail investors with respect to OTC forex transactions. This would apply to futures and options and futures “look alike” contracts. I say that the enforcement issues are unresolved in our article both because of the practical realities involved in enforcing this rule and because this was just an opinion of one regulator, not of the Agency.

Excellent comment on our FaceBook page:

Robert: I spoke with both the NFA and the CFTC by phone. The most knowledgeable was a guy in the compliance dept at the CFTC. He says the rules apply to any brokerage, foreign or domestic, that wants to do business with U. S. traders. So, while the regulations are not aimed at traders themselves, they are indeed aimed at any/all brokers that do business with U. S. traders. In other words, if we have accounts at FXCM UK or Dukascopy (Switzerland) or anywhere else in the world, the CFTC will force those brokers to change our leverage to 50:1. The only good news I heard was the definition of what the major currencies are. Apparently the NFA has a list of what it considers the major currencies. This is in the Financial Regulations section of the NFA manual. Fortunately this includes (in addition to USD) the EUR, GBP, JPY, CHF, CAD, AUD, NZD and even the Norwegian, Swedish and Danish currencies. In other words, any currency that retail traders are likely to trade will be at 50:1 not 20:1. I can live with that. Im not happy about the excessive intrusion of our government into our business, but I can live with this.

New CFTC forex trading rules call for 50:1 leverage

August 31, 2010 | By: Robert A. Green, CPA

The CFTC has published its highly anticipated final rules for trading off-exchange retail forex. As discussed on prior blogs, the recently enacted Dodd-Frank Fin Reg bill forced the hand of the CFTC to act by Oct. 19 because it would otherwise bar non-eligible contract participants from off-exchange retail forex trading. The CFTC acted in the nick of time because these new rules are effective on Oct. 18, 2010 — one day before the Dodd-Frank deadline.

Some of the changes are crystal clear — like new 50:1 leverage limits on major forex currencies — but the equally important rule about allowing or barring offshore trading is not yet clear per documents published to date. One off-exchange retail forex broker concluded Tuesday that offshore trading won’t be allowed after the effective date, implying that offshore forex brokers will have to register with the CFTC as well and will be subject to these same new rules.

The CFTC’s new leverage rule calling for a minimum 2 percent deposit on trading major forex currencies off exchange (50:1 leverage) seems on par with what commercial banks like Citi FX Pro offer their retail forex trading customers now.

It’s a wise move by the CFTC to reduce leverage by two times — 100:1 to 50:1 under the new rules — rather than going way over board with its original proposal of 10:1 leverage. Unlike most off-exchange retail forex dealers in the U. S. Citi FX is not regulated by the CFTC; it is subject to bank regulation.

It’s important to note the CFTC grants the NFA powers to set leverage rules higher than these new minimum percentages.

Thankfully, the CFTC responded to the pleas from the off-exchange retail forex trading industry saying the CFTC’s proposed 10:1 leverage rule would put the industry at a huge competitive disadvantage to on-exchange currency futures trading (30:1), commercial bank forex trading (50:1) and offshore off-exchange retail forex trading (200:1). The new deposit rule for non-major currencies is 5 percent (20:1).

Regulators and Congress are often sensitive to chasing business (and fraud) abroad with new rules as well as taking business away from small businesses and handing it over to big banks. The CFTC also wants the U. S. to remain competitive for foreign traders, as foreign traders can continue to trade offshore without concern about registration in the U. S.

It seems these new rules will put a stop to Americans trading retail forex offshore to evade CFTC rules. That trend picked up the pace in recent years and it may need to be reversed quickly. But we arent completely certain of this yet. We will study the new rules and see if offshore trading remains feasible for Americans under extraterritorial provisions of the Dodd-Frank Fin Reg bill. (We discussed how offshore trading might be a problem for American’s using offshore forex platforms on our recent blog and podcast.)

We base our initial thoughts on the first documents released by the CFTC (links below). In the CFTC’s QA document, see the “Who can offer off-exchange forex transactions to retail customers” section. It states that Dodd-Frank Fin Reg changed the definition of allowable financial institutions to “only U. S. financial institutions.” The next section, “What is the scope of the CFTC’s jurisdiction,” implies that unless the entity is regulated by the SEC or bank regulators – again for U. S.-only financial institutions the default catchall regulator is the CFTC. It makes sense that the CFTC would act in this manner, but again, we arent certain of these rules yet. Nothing in these CFTC documents specifically exempts offshore forex platforms or brokers from these new rules, either. Stay tuned for further observations.

For more information:

CFTC releases final rules regarding retail forex transactions: Click here.

Final rule regarding retail foreign exchange transactions (summary): Click here.

Federal Register: Regulation of Off-Exchange Retail Foreign Exchange Transactions and Intermediaries: Click here.

Questions and answers regarding final retail foreign exchange rule: Click here.

CFTC unveils retail currency-trading rules: Click here.

U. S. forex traders may not be able to skirt rules by moving accounts offshore

August 10, 2010 | By: Robert A. Green, CPA

The Dodd-Frank Fin Reg bill may extend the CFTCs rules for retail forex trading to foreign trading platforms that are also marketed to Americans. This might mean U. S. resident traders won’t be able to evade CFTC rules for the proposed 10:1 leverage and the recent LIFO trading NFA rule change by using a foreign trading platform. Some foreign forex trading platforms offer 200:1 leverage and spread betting (no requirement for LIFO accounting).

A tax and regulatory attorney colleague replied to my questions on these issues: “Our Congress takes a very broad reach of the extraterritorial reach of our securities and commodities regulatory laws. Solicitation of customers who are U. S. persons — even though the solicitation is made outside the U. S. by a non-U. S. person — is covered. That is why, for example, foreign futures exchanges that want to offer their products to U. S. customers must obtain a 30.10 order from the CFTC qualifying them to solicit U. S. customers. As a practical matter, of course, enforcing that extraterritorial jurisdiction can be difficult (is the U. S. going to invade the Cayman Islands?)

If 10:1 retail forex trading leverage is enacted by the CFTC/NFA, can U. S.-based retail spot forex brokers easily move their U. S. trading customers to their UK affiliates? It seems like the U. S. broker would be switching them to a foreign affiliate to evade U. S. regulations, and based on my colleagues statement, I think it could be a problem.

U. S. forex traders may be left with two unfortunate choices. Trade on CFTC-sanctioned foreign OTC platforms respecting CFTC rules on LIFO and perhaps 10:1 leverage or take their chances in offshore tax havens (reportable on tax returns). Why go to foreign platforms if the rules are the same and perhaps invite more IRS questions? Why go to offshore havens if it’s potentially illegal and a tax problem with the IRS scrutinizing offshore accounts?

Tax-haven platforms may never get CFTC sanction, so will they be illegal under Dodd-Frank, or, will it be a viable way to navigate around the U. S. forex trading leverage constraints?

Many comments published on the CFTC site say it’s a bad idea to chase U. S. forex trading business to tax and regulatory havens where there’s much more fraud. The way Congress wrote Dodd-Frank, it seems like its either going to be sanctioned by U. S. regulators or prohibited entirely. Can a U. S. person report forex transactions on their tax return from counterparties that are not sanctioned?

My colleague said Dodd-Frank Section 929Y has one reference to extraterritorial (which means ”foreign” ) saying the SEC has jurisdiction to regulate extraterritorial swap contracts. We think this same extraterritorial concept may apply to retail forex trading too. The CFTC regulates retail forex, whereas the SEC has authority over swaps. The Dodd-Frank bill couldn’t possibly mention every point, leaving much to interpretation by regulators. We think the CFTC may interpret the legislative text to mean the CFTC has extraterritorial control over retail forex too. It would be too simple for Americans to avoid the new rules with foreign brokers otherwise. If the CFTC has extraterritorial powers on retail forex, then foreign-based brokers will probably not do business with non-eligible contract participants. Good size hedge funds and proprietary trading firms may be qualified participants. Foreign banks and brokers with U. S. affiliates will fear the U. S. regulators attacking their U. S. operations.

Might there be an opening for retail forex trading to move into prop trading firms — with traders joining these firms as partners — inside and outside the U. S. By combining trading capital with other traders, a group of individuals may achieve eligible contract participant status. There are regulatory problems with prop trading firms too, as covered on this blog.

We’re working on these very important issues for U. S. forex traders. We hope to have more information on our conference call Thursday at 4:15pm ET. We discussed it on last weeks podcast too.

Excerpts from the Dodd-Frank bill:

Dodd-Frank SEC. 742. RETAIL COMMODITY TRANSACTIONS.

PROHIBITION-‘(I) IN GENERAL - Except as provided in subclause (II), a person described in subparagraph (B)(i)(II) for which there is a Federal regulatory agency shall not offer to, or enter into with, a person that is not an eligible contract participant, any agreement, contract, or transaction in foreign currency described in subparagraph (B)(i)(I) except pursuant to a rule or regulation of a Federal regulatory agency allowing the agreement, contract, or transaction under such terms and conditions as the Federal regulatory agency shall prescribe.

Dodd-Frank SEC. 929Y. STUDY ON EXTRATERRITORIAL PRIVATE RIGHTS OF ACTION.

(a) In General - The Securities and Exchange Commission of the United States shall solicit public comment and thereafter conduct a study to determine the extent to which private rights of action under the antifraud provisions of the Securities and Exchange Act of 1934 (15 U. S.C. 78u-4) should be extended to cover -

(1) conduct within the United States that constitutes a significant step in the furtherance of the violation, even if the securities transaction occurs outside the United States and involves only foreign investors;

(2) conduct occurring outside the United States that has a foreseeable substantial effect within the United States.

(b) Contents - The study shall consider and analyze, among other things

(1) the scope of such a private right of action, including whether it should extend to all private actors or whether it should be more limited to extend just to institutional investors or otherwise;

(2) what implications such a private right of action would have on international comity;

(3) the economic costs and benefits of extending a private right of action for transnational securities frauds; and

(4) whether a narrower extraterritorial standard should be adopted.

(c) Report - A report of the study shall be submitted and recommendations made to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House not later than 18 months after the date of enactment of this Act.