Interactive Brokers restricts US leveraged forex trading to big clients only

Interactive Brokers restricts US leveraged forex trading to big clients only

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US automated forex brokerage house Interactive Brokers will discontinue offering leveraged forex trading services to US retail clients with less than $10 million in deposited assets, according to a notice the broker has sent to clients, as cited by forex media ForexLive. Starting 1 September, 2016, clients of the broker will only be able to use leverage if they have an account with assets of more than $10 million, or in case they use hedging they will be required to have minimum assets of $5 million.

After 1 September, the open positions of clients that do not classify for the above-said conditions will be transferred to a close-only mode.

The changes will not apply to non-leveraged forex trading or to margin trades for stocks denominated in foreign currency.

The imposed restrictions match those recently set by the US Securities and Exchange Commission (SEC) in relation to retail foreign exchange transactions. Under the new regulation any broker or dealer, including those dually registered as a futures commission merchant (FCM), is prohibited from offering or entering into a transaction with a person who is not an eligible contract participant. According to the US Commodity Exchange Act (CEA), an eligible individual is that “who has amounts invested on a discretionary basis, the aggregate of which is in excess of
(I) $10,000,000; or
(II) $5,000,000 and who enters into the agreement, contract, or transaction in order to manage the risk associated with an asset owned or liability incurred, or reasonably likely to be owned or incurred, by the individual”.

Interactive Brokers is one of five forex brokers operating in the US market. It is the one with the lowest retail forex client deposits of $31.8 million in June, according to the latest report of the US Commodity Futures Trading Commission (CFTC). For one thing, cutting off on clients with such demanding restrictions means the broker will lose a large share of clients and market share to the leading retail forex brokers that do not need to follow such restrictions.

On the other hand, the restriction also hinders the already strongly consolidated retail forex market in the US. Since the beginning of 2016, several brokers have exited the market – IBFX, Wedbush Securities, and Phillip Capital. Meanwhile, just a single one (TD Ameritrade Futures & Forex Llc.) has commenced operations in 2016 so far and no new market entrants are expected. On top of that, the market has been shrinking in terms of client assets. Since the beginning of the year the market has been posting monthly deposit values below the lowest for 2015. The highest client deposits value so far in 2016 was $519 million and was registered in February, while the lowest monthly value in 2015 was $544.1 million and was reported in December.

The trading metrics report of Interactive Brokers for Q2 2016 showed that the number of customer accounts the broker handled in April-June increased 15% from the the same time a year earlier. Following the success, in July the broker reached 360,100 client accounts, which is the highest number in its history.

Connecticut-based Interactive Brokers is a broker and a market maker. Through its numerous subsidiaries, the company offers online automated trading in stocks, options, futures, forex, bonds, contracts for difference (CFDs ) and funds. It serves traders, investors and institutions in over 100 market across the globe. The brokerage has offices in the North America, Europe, Australia, and Asia. The group companies hold licenses by the relevant authorities in the US and the UK.

Following is the full text of Interactive Brokers’ statement:

“Effective September 1 2016, Interactive Brokers will require that only accounts held by “Eligible Contract Participants” may open leveraged forex positions.

An “Eligible Contract Participant” generally is an individual or organization with assets of over $10 MM (or $5 MM if trades are hedging). See KB2731 for the definition of an Eligible Contract Participant.

If you are or may be an “Eligible Contract Participant”, please review KB2732 for instructions on how to complete a required questionnaire to continue trading leveraged forex.

If you do not qualify as an “Eligible Contract Participant”, after September 1, 2016 you will be able to close your existing leveraged forex positions but you will not be able to do any additional leveraged forex trades.

NOTE: This Notice does not apply to currency trades that are un-leveraged “conversions” of one currency to another. This Notice also does not apply to margin trades for stocks denominated in foreign currency. Those trades are not affected by this Notice.

Interactive Brokers Client Services”

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