NFA Changes Margin Requirements on Forex Trades

The US National Futures Association (NFA), the agency responsible for policing the futures industry in the United States, said it would temporarily raise margin requirements on the Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term futures involving the Mexican peso, Japanese yen, and New Zealand dollar, effective December 5, 2016.

NFA has required traders to increase the minimum security deposits collected and maintained by the Futures Commission Merchant (FDMs) to 8 percent for the Mexican peso and 4 percent for the Japanese yen. The self-regulator also said that investors who enter into FX trades involving the New Zealand dollar would have to post a minimum margin of 3 percent of notional value of their transactions.

In addition, the Executive Committee has also determined to reduce the minimum margin requirements for currency trades involving the Swiss franc to 3 percent, down from the current 5 percent. In January 2015, NFA boosted the security deposits required for trading the Swissy—a move that limits Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term— following steep losses suffered by traders and brokers in the wake of the Swiss National Bank’s decision to remove the 1.20 floor on the EHR/CHF currency pair, a decision almost no one saw coming.

The changes are part of Section 12 of the NFA’s Financial Requirements which allows the executive committee to temporarily restrict the amount of borrowed money, or leverage, under extraordinary market conditions.