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Screenshot of a breaking news alert e-mail from Q2 2017
Some late breaking news into the weekend as we found out that Interactive Brokers Group, Inc (NASDAQ: IBKR) has sent alerts to clients informing them of an update in their service plans for U.S. based Forex traders with the company. It looks like Interactive Brokers will restrict margin FX trading only to “Eligible Contract Participants”, meaning those with very large balances in excess of $10M (not retail traders), this includes HNW individuals or currency trading based prop funds.
We note that this is a direct outcome of the SEC ban on broker-dealers also offering leveraged forex trading to retail clients, which broke first on LeapRate back in May of this year.
More specifically, “Eligible Contract Participant” is an individual or group allowed to engage in financial transactions not open to retail customers. The complete definition is located in Section 1a(18) of the Commodity Exchange Act. For more information about the Commodity Exchange Act, read the complete definition here.
Now your average FX trader in the U.S. has only 3 brokers to choose from in FXCM, GAIN Capital and OANDA, which are all fine options. However, across the pond…UK and Europe based traders have dozens of unique and competitive offerings to place their capital.
The letter sent to IB clients stated below with screenshot:
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.
You can view here the latest U.S. retail forex dealer report to see how the industry has consolidated down even more now with this interesting piece of news today.