As one of the most hectic months in the history of Forex draws to a close, LeapRate has decided to remind everyone that today witnesses an important change in the US regulations for funding of retail Forex and futures accounts. As of today – January 31, 2015, the ban on funding the accounts of retail clients of Forex dealer members (FDM) and Futures commission merchants (FCM) via credit cards and related means comes into effect.
The change reflects a proposal by the National Futures Association (NFA), which was approved by the Commodity Futures Trading Commission (CFTC) in December 2014.
The main argument, as stated by the NFA, goes as follows:
“Credit cards, by their very nature, permit easy access to borrowed funds. Given the highly volatile nature of the forex and futures markets, the substantial risk of loss, and the possibility that a total loss may occur in a very short period of time, the Board has concluded that Members should be prohibited from permitting customers to use credit cards to fund forex or futures accounts.”
The decision came after a broad study by the NFA of Forex dealer members’ business practices. NFA examined more than 15,000 retail forex accounts and found that the bigger part of these were funded by small retail customers using a credit card or borrowed funds. Also – a majority of these accounts were unprofitable. So, the main purpose of the ban is to protect retail FX traders.
A couple of things to note:
- The ban applies not only to funding via credit cards, but also depositing via other electronic payment facilitators (like Paypal) that usually draw funds from a customer’s credit card. The NFA demands that all FDMs and FCMs are able to distinguish (before accepting funds) between a debit card or other electronic funding method that draws money from the customer’s checking or savings account at a financial institution and a traditional credit card. The companies have to be able to reject the credit card before accepting funds.
- The ban does not apply to withdrawals, that is, one can still withdraw funds using all sorts of electronic payment means. Have in mind certain restrictions, however, such as the commonplace 125% rule – you cannot withdraw more than 125% of the amount you have deposited using your credit card. In case you wish to withdraw a bigger sum, you have to withdraw the remainder using alternative means like wire.
The number of participants in the US Forex market has been shrinking over the past couple of years and the major part of assets has been concentrated within a handful of companies. The latest data we have for retail FX assets of FCMs is for November 2014, showing FXCM Inc (NYSE:FXCM), OANDA and Gain Capital Holdings Inc (NYSE:GCAP) control 75.4% of the retail FX market in the United States.
But so much has changed since November 2014… We would be able to say more on the actual allocation of market share in the US after the CFTC publishes the figures for FCM retail assets for January 2015.
You can get acquainted with the text of the official CFTC decision on the implementation of the credit card ban by clicking here.