I just wrote a "guest" blog entry at Forex Magnates about NFA's proposal to limit the leverage Forex brokers can offer their clients. Effectively, the proposed regulation would limit leverage to 100:1 on major currencies (GBP, CHF, CAD, JPY, EUR, AUD, NZD, SEK, DKK, NOK ) and 25:1 on all others.
Inexperienced traders will be opposed to the proposed regulation because they'll feel leverage limits will inhibit their ability to make big profits. Brokers, on the other hand, have a different concern. They are worried about their ability to compete in an already tough global market. With offshore brokers still offering up to 400:1 leverage, U.S. brokers could find itself in a customer retention battle. FXCM is already encouraging U.S. traders to move their accounts to the UK to avoid the new anti-hedging policy. We still haven't determined how effective a marketing strategy that will turn out to be, but it does put more pressure on domestic brokers.
So is the recent blitz of regulations good for the industry (both traders and brokers) or is it just a knee jerk reaction to the current global economic crisis brought on by years of lesser oversight? I thnk we're going to find out -- pretty quick.