Regulatory Change and the Trader

Over the last two decades of working in the market, one constant is regulatory change. Sometimes it is just the threat of it, sometimes it’s more minimal. Yet it is always there, and in someway it effects your trading. From the top gun hedgie to the smallest forex trader. These changes may not hit you at first but as others are effected and change how they do business, it will often work its way to you.
    Many of the changes have great reasons although often poorly executed by the regulators. The strong and sharp trader will do his homework and find a way, often the bring opportunity in the muck. That’s what trading is, and those who succeed have often kept there discipline but evolved in the things and style they trade in. One of variables of both the market and regulation, change. Its a variable constant lol.
      Much of the early forex boom started in the early years of this century was a response to regulatory change in stock day trading. Because so many traders got whacked at the end of the tech bubble, regulators stepped in. The change was the pattern day trader rule. If you had less than 25k equity in your account, you were limited to four trades a week of less than 24 hour duration. On the other side of that, if you had 25k or above you could have 4x margin for day trades instead of the classic 2x. That part still makes me shake my head. Not exactly logical but regulation often falls apart there.
   The fallout of this change was felt in various ways. First, many guys who were making nice side money with a few thousand dollars were taken out of the game. Others needed taken out but it wasn’t really fair to the good ones. Many traders who now had 4x equity couldn’t handle it and blew up. Too much risk with too much juice is the end for many. How did it help the forex boom though you ask?
     Spot forex was getting attention. The advent of firms offering mini accounts(10k fx contract) was a place for the trader without enough equity to avoid the pattern day trading rule to go. The account minimums got lower. The contract margin got cheaper. The game grew. It was certainly part of the explosion in forex trading.
    With any boom comes pain, fraud and various scams. Those always bring regulatory attention. That’s where we are in forex now. I think its just the beginning, but it will come. All of us will feel the change. Start preparing now. The negatives and the opportunity. Planning and doing your homework can make it a positive for you. Be nimble. Be aware.
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