The extremely high leverage ratio remains to be a peculiarity that is often misunderstood by novice traders. Their math is easy. Say CNY has appreciated 20% against USD in a year. So if they take full advantage of the leverage, they would have 2,000% return.
This is not the way things are. Extremely high leverage ratio, by no means, is aiming at long term investment. Rather, its primary benefit, is to provide investors to take advantage of noise of the forex market, in the presence of its liquidity. For the brokers, this is good because they can both eat the bid-ask spread and enjoy a decent interest from short-term lending. But if it's interpreted in the wrong way, the outcome could be disastrous. If you ask any experienced forex traders, they would say high leverage ratio accelerates you to hell, not to heaven. Personally, I never trade at full capacity. I believe what Bill Lipschutz said, the most important thing, is to stay in the game.
So yes, it's well acknowledged that high leverage ratio is no good for premature investors. But is NFA's action making a point out of this? I don't think so. Firstly, the big fishes in the forex pond, I believe, still have access to formidable financing power. So the new regulation doesn't make the pond a more peaceful world, rather, it gives a hard time to small fishes like me. It potentially reduces the capital that small investors are exposed to and enlarges the gap between big and small fishes. It's really a bureaucratic decision in my view.
Everyone knows nuclear weapon is no good. But like what game theorists say, the equilibrium is still achieved by those nuclear countries if they foresee the disastrous outcome. It's the same logic that applies to the forex leverage ratio. And now, NFA is artificially changing the rules of the game and naively thinks they are protecting the small investors. It's ridiculous.
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