Investors May Lose Ability to Pay for Foreign Exchange Trades with Credit Cards

Tuesday, 12 Feb 2013 10:42 AM

By Dan Weil

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Individual investors may lose the ability to pay for their currency trades with credit cards amid concern people are building up big bills on their plastic to finance their trading.

Industry regulators are considering a ban, according to The Wall Street Journal.

The National Futures Association (NFA), which is in charge of self-regulating the U.S. futures industry, wrote a letter to its members last month expressing worry that individuals “are using credit cards as a source for borrowing funds to invest.”

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

An association spokesman says its compliance and risk committee will discuss a ban Wednesday, The Journal reports.

If the NFA indeed prohibits credit cards, the Commodity Futures Trading Commission, the government body regulating the currency market, will almost certainly follow suit, Javier Paz, a senior analyst with consulting firm Aite Group, tells the paper.

That would mean individual investors trading currencies would have to finance their accounts through means such as personal checks or wire transfers.

“We know of no other industry that has banned retail clients from using credit cards to purchase goods or services,” said Michael Borland, chief compliance officer at Oanda Corp., a Canadian company that is one of the biggest retail brokers in the United States.

Retail investors account for about $380 billion a day in foreign exchange trades, almost 10 percent of global volume, according to Aite.

If a ban is implemented, experts believe retail foreign exchange trading platforms would experience millions of dollars less in deposits to U.S. customer accounts. Some believe it would lead some firms to close their U.S. retail operations.

Meanwhile, after a slump last year, currency trading volume is picking up so far this year, market participants say.

“It’s been a very encouraging start to the year in terms of volumes and performance,” Kevin Rodgers, global head of foreign exchange at Deutsche Bank in London, told Bloomberg last month.

“It feels like the market is getting back to a normal level of activity and behavior that you would have seen pre-crisis.”

Bloomberg noted that trading volumes were low last year because of the easing efforts of central banks.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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