23 June 2011

Oanda Gets Dumbed Down

I received this email from my Forex broker, Oanda, this afternoon:

Re: Important Notice on Gold and Silver Trading with OANDA.

Dear Paul E. Zimmerman,

As a result of the recently enacted Dodd–Frank Wall Street Reform and Consumer Protection Act, U.S.-based retail forex dealers such as OANDA are prohibited from offering leveraged trading in precious metals to retail clients after Friday, July 15, 2011.

As a client based in the U.S., you will not be able to trade our four precious metal pairs (XAU/USD, XAG/USD, XAU/JPY, XAG/JPY) on a leveraged basis, effective end of day July 15. Leveraged trading in other currency pairs will remain unaffected, with the same margin requirements.

You will still be able to trade precious metals, but only on a 1:1 non-leveraged basis (requiring substantially more margin). If you do not have sufficient margin to cover your open metal positions in full, you need to reduce your exposure to gold and silver pairs before end of day July 15, or risk a margin call of all your open positions when this change is implemented.

We sincerely regret any inconvenience caused by this change in legal requirements...

I sure am glad that Bawney Fwank and Chris Dudd came around to protect me from myself (and profits). I don't know what I would have done had they not forced me and tens of thousands of small retail traders to cough up ever-greater amounts of cash to use as margin for our trades. Someone had to stop this insane practice of accepting risk in pursuit of reward, especially inside of accounts like these Oanda accounts where losing trades will stop out before the account hits zero, meaning you can never lose more than you actually have and end up owing the broker. Good save, fellas!

I don't blame Oanda for this at all, of course. It's the law now, they have to comply. No one should take my comments on this to mean that I'm lumping them in with these jackass politicians.

This does make me wonder, too, if precious metals prices are going to crash when these new regulations are in full effect. Some portion of the presently high prices these metals are commanding (historically speaking) is probably in part due to leveraged trading in them. Take that away and it could cause a bit of a collapse (or a lot of one). We'll see.

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