Early this morning, the U.S. National Futures Association announced new limits upon the maximum leverage that U.S. Forex brokerages may offer clients in trading certain currencies. The new limits will apply from 5pm CST today, Thursday 22ns January. Concurrently, the troubled FXCM which dominates the U.S. Retail Forex market announced even heavier limitations.
The National Futures Association made this move under NFA Financial Requirements Section 12, which had been limiting the leverage brokers may offer to 50:1 in 10 listed major foreign currencies (including the Swiss franc, Swedish krona and Norwegian krone), and to 20:1 in all other currencies.
From today, brokers will be required to limit leverage in transactions involving the Swiss franc to 20:1, and in transactions involving the Swedish or Norwegian krone, the maximum leverage will be 33:1.
FXCM have announced even more onerous limits, which will go as low as 2.5:1 on EUR/CHF. In fact, by the beginning of next week, FXCM will have reduced all the leverage limits they were offering yesterday by a factor of 4, meaning that FXCM clients will effectively have their maximum position sizes reduced by 75%.
FXCM have announced that these new limits may be temporary, owing to volatility that may be triggered by the ECB QE announcement expected later today, and the Greek general election due Sunday.
Several other brokers have also been lowering maximum leverage offered to clients. This should increase the pressure on clients with smaller account sizes to be more properly capitalised, and lower the risk to Forex brokerages of catastrophic losses.