While financial regulators will always emphasize the importance of the individual investor in the markets, many times actions are taken that have the opposite impact. Such is taking place now with the new proposal by the National Futures Association (NFA) to prohibit the use of credit cards as a funding measure for retail foreign exchange brokers. The NFA wants to prevent customers from trading with funds obtained from credit cards, deeming this not to be suitable for purposes of risk capital
But in a cashless society, credit cards are simply an alternative, convenient, secure and well-established way of transferring funds. Capital from credit cards has provided the funding for many small purchases and a number of successful business ventures. If an investor incorporates or sets themselves up as a small business entity, they further increase their access to credit card financing. This makes credit cards an ideal and practical source of capital for a responsible foreign exchange trader or investor.
When it comes to financial responsibility, in order to obtain a credit card, one must have decent credit history and either a source of income or a co-signer. Responsible traders who apply risk management techniques on a daily basis should have no issues managing low-interest credit card debt. There are also cash access checks that come in marketing campaigns that allow for low-or-zero interest borrowing with very favorable repayment terms. These terms make payments easier to rotate in a responsible manner.
In addition, Sarbanes-Oxley made it more difficult to get approved for a credit card. Between the responsibility of the individual investor, small business owner, consumer protection safeguards, regulation of the credit card industry and the algorithms of the credit card company, there is plenty of oversight already taking place.
In the modern society, credit cards are one of the most important and practical sources of financing available for the individual. These are unsecured loans that can have very flexible repayment terms, depending on the relationship of the borrower with the company. And more funds can be made available with just a phone call to a company representative.
No responsible foreign exchange investor will want to lose access to this source of funding by abusing credit cards. If one is capable enough to trade foreign exchange and responsibly manage risk, there is obviously the stability to obtain financing from credit cards. Perhaps NFA should have a little more faith in investors’ sense of financial responsibility and ability to make intelligent decisions. This is an area that the NFA is going way over the limits in its regulatory authority.