AUTOREFRESH 
New margin requirements for Japanese retail market
By Sean Lee || July 28, 2010 at 23:00 GMT
|| 26 comments || Add comment
Next Monday morning, new increased margin requirements will be introduced for Japanese retail accounts. The Japanese retail community is generally long AUD/JPY or USD/JPY and many accounts will utilise the whole of their 100:1 leverage. If they cannot meet the new requirements then they either have to put in more cash or else their positions will be closed. The positions that don’t meet the new margin requirements will be closed en-masse at 00:00 GMT next Monday morning. We have absolutely no idea what effect this will have but if unsure, then stay out until its settled.
maybe many will stop scalping
and return to carry trade
Hi Sean,
Is the new requirement is of 100:1 leverage or 50:1 leverage? I read earlier it was 50:1.
Cheers
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Morning Puks, new max is 50:1 I believe
Yes, 50:1 this year, and they are cutting it further to 25:1 a year from now.
That’s correct: 50:1. But in 12 months (Aug 2011) it will go down to 25:1. So more potential fun on the way. This is likely to be mirrored eventually in other countries. The established brokerage industry (read the futures market) has been pushing worldwide to bring leverage requirements up to futures market levels, claiming that they are suffering from a competitive disadvantage, and that extreme leverage is too dangerous for most customers anyway. There will likely be national holdouts against this trend, but then you will have to decide how safe you feel sending your money abroad to G-way-down-on-the-list countries.
Personally I am thinking of watching what happens on Monday morning, and if AUD/JPY and USD/JPY have been smashed down between 50 ~ 100 pips for seemingly no reason I will take it that the max leverage loss cut rule has been wrecking havoc and go long targeting to NY close levels.
Thanks Lance, David
Also, current maximum is not 100:1 – there is no current maximum, but I think the most I heard on offer was 600:1? The big companies seem to go up to 200:1 only, however.
Sean lets say a retail Japanese trader with a $10K account has an open position and is down $5K on that position. Are you suggesting that the losing position will close automatically if the trader does not increase the account balance to meet the new margin requirement before mid-night next Monday? Sounds unreasonable to me.
That’s how I understand it John B. If they are running a 300k position say, then their account is unable to cover the margin requirements and so the position will be immediately cut
Thanks Sean & other readers.
Unreasonable? Maybe, but there has been plenty of warning about this from authorities, and this is also why they are phasing it in with the limitation to 50 first this year before 25 max next year.
The regulation has been talked about since early last year, so few people should be surprised about this… but we will never know until Monday morning.
Just found an article (at J-Cast) including a survey of fx traders by one Internet broker, which says 13% of investors didn’t know about the new regulation as of June.
The article also says that more than 90% of investors will keep trading despite the rule change, and that right now 70% of them already trade below 40 times leverage.
My guess is that not many people in that 10~15% who don’t know about the change would trade more than 50:1 have be sitting on out of the money positions.
Same thing can happen anywhere. In the US Reg-T is rarely adjusted, but it can be and has been. I do think there should be very long lead times on these changes, however, even for the first phase. It is, after all, changing the rules in the middle of the game. The shorter the lead time, the more trading gets done on a forced basis rather than on a market basis. Six months minimum from the decision point seems reasonable to me. A few weeks plays into some hands, and robs others. Not leveraged, so no sour grapes, just a bit of a complaint on principle.
The law change was promulgated last August, it seems. I guess some of the FX companies were a little slow to make their compliance measures known. Lance you are in Japan right? I use gaitame.com and gaitameonline.com, what about yourself?
that’s so bad, forex will dissapear quickly
whatsa ghoing to happen on my positions because i have on usd/jpy but my acounts is en london on usd. any one can answer me please
balboa, waiting for Sean answer and explication, also the source of this big news
David, I use both FXCM Japan and SBI, but I’ve been thinking about Gaitame. I was under the impression that the rule change was not finalized until fairly recently (I know it’s been under consideration for a long time). Did I miss something? (Entirely possible.)
ulises balboa – the changes only effect people with accounts that must comply with Japanese law. If you don’t live in Japan, you can probably rest easy
But there might be some rough moves on Monday morning if you are trading JPY pairs.
Lance, haven’t used those. Gaitame.com offers trading in 1,000 yen units which I like, but for 10,000 yen units I prefer GaitameOnline.com (the spreads are a bit narrower and I just like their system more).
Have been thinking about looking at a Click365 company myself, since it seems like one can pay less tax that way. But if one is using an offshore account perhaps one can get away with paying no tax at all?!
David, I pay my taxes. It’s just overhead, and like any chronic lawbreaking, you have to carry an ever-increasing amount of risk forward. I mean, mentally, one can never escape the possibility that the man can come knocking on one’s door tomorrow. Or tonight. That may be a low-level risk, or not, but it’s a chronic risk that I don’t want to add that one to the risk I already assume in the market. And here in Japan there have been some very big traders who thought they didn’t have to pay tax who are now in basically perpetual debt to the government. That’s not for me.
FXCM offers their regular Trading Station, plus in Japan something called Trading Station Tight. Tight offers very tight spreads, liquidity dependent, but often as low as 0.6 for USD/JPY, sometimes 0.4 and I’ve even seen 0.2. During slack times that will expand to 1.0, or sometimes even quite a bit higher during serious slack. But you can only trade 100K lots on Tight, which just happens to be okay for me. Oddly enough FXCM Japan does not allow hedging, which they allow in the UK (but not in the US due to regulation), but SBI (Japanese company) allows it. I think I pay SBI an extra 0.75 on average compared to FXCM, but at least I can hedge by going long in FXCM and doing my short hedges at SBI.
Thank you so much David