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Forex Industry Porter Five

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Submitted By jorgej
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Currency trading industry:

On the consumer part of the industry, the currency trading market consists of retailers and institutions. To trade with institutions, a large entrance capital is needed because institutions don’t offer leverage. For the small investors, retail trading firms are the gateway into trading. These retail trading firms give investors the opportunity to use leverage to invest. Before the year 2009, retail firms in the United States offered 400 to 1 leverage. This meant that for each dollar the customer invested, she was able to control up to $400 of the firm’s money. Since individual traders are buying only a small part of the lot size of the transaction, using leverage would give her the opportunity of having profits on such minuscule price changes that characterize the currency trading industry. Prices don’t vary for much, and investors aim to have several small gains, several times a day. However, because of high leverage, customers could win or lose large amounts of money really quick. Retail traders make money by charging a small percentage of the difference between the asking and biding prices.

Before 2008, the currency trading industry was unregulated. However, the US government decided in 2008 that the Commodity Futures Trading Commission would be the agency in charge of regulating this industry. This seemed to be the most appropriate agency for this because currencies are considered commodities. At the same time, the National Futures Association became the institution policing the industry.
In 2009 the CFTC passed a regulation aiming to control volatility in the industry and to limit the amount investors could lose. In the US, leverage was lowered from 200 to 1 to 100 to 1. As part of the Dodd-Frank act of 2010, retail currency traders are now required to follow more strict regulations. To prevent companies from declaring

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