Michael's Blog

Financial Fear (Protectionism) or Financial Health (Growth)? MICHAEL RADKAY

When making a financial decision do you ever ask yourself the question, Am I making this decision out of financial fear or financial health? Let s look at an example: two different groups have to make the same choice, but for vastly different reasons. Group 1 decides not to go out for dinner anymore in order to conserve money because they were laid-off from work. Group 2 makes the same decision not to go out for dinner anymore, but their reason is to take that saved money and upgrade their business. Both reasons are legitimate, but one choice is made out of fear and the other is made for growth. After reading this article, when faced with future financial decisions hopefully you will start asking yourself, Is this coming from Financial Fear or Financial Health?

Businesses make those same type of decisions when they are looking at the growth of their product or the lack thereof, but some continue to ignore the signs of excess when the clues hit. Do you remember AIG, Lehman and Bear Stearns to name a few? In order to keep up with the Joneses these companies continued to offer products that put their businesses at risk while ignoring the excess of their actions. Even Gordon Ghekko would cringe (just for a second) at the greed.

Many factors influence the success or failure of a business. We most certainly can curb excess in our lives but at times negative forces out of our control present obstacles. Some uncontrollable forces like natural disasters, death, random acts of violence are unavoidable, but government intervention and regulations can change the course of a business overnight as well. Government may have swooped in and acted as the savior in 2008 and 2009 but was their intervention coming from a space of Financial Fear or Financial Health? Did they fix anything to make sure banks will not do this to us again? As a business owner you always have to be watching, reading and listening to your competition and act when your market demands it. Be creative!! We live in a real-time world and consumers are demanding real-time solutions.

I think most of us would agree that government regulations are vital when they come from the space of Financial Health. Regulations can keep dishonest and deceitful business owners in check, which promotes integrity and Financial Health of a needed product. An example of this is when the Food and Drug Administration regulates the food industry to make sure that companies have systems in place to keep their products clean and safe for public consumption. Great Rule!!

Sometimes regulations are levied on a business to protect and help it even if the business isn t shifting with the competition. The government was needed to bail out the banks, but why were the excesses allowed in the first place. Isn t this deceitful behavior? Rightfully so, everybody threw the hammer at Bernie Madoff and his Ponzi Scheme as he duped investors. Thankfully I didn t have any money with him, but where was the client s bail-outs? The client did everything right and thought this guy was legitimate and under the jurisdiction of the regulatory agencies. Buyer beware in this case I guess, right? Why did J.P Morgan get special treatment over Bear Stearns in 2008, was it just because J.P Morgan was lucky enough to bail on their hidden risks first and Bear Stearns got left without a chair to sit on? From what I read it sounded as if J.P Morgan was doing it right and the backing of J.P Morgan by the Federal Reserve seemed to be coming from a space of Financial Health. Great Idea!! Reward great behavior!!

With competition and Financial Health certain businesses will climb to the top and become the best of the best. Look at Microsoft. Two guys in a garage build an operating system for a computer and make it so awesome that their product becomes a necessity for practically every business today. Maybe those two guys weren t the first to build the computer, but they sure did it better than the others at the time. What did the government do after they reached enormous success, they began to break it up. Was it fair for this to happen? Was that break-up an act of Financial Fear or an act for Financial Health? Would the Mac have been built by Apple and Steve Jobs, if Microsoft wasn t regulated. Of course!! Apple rose from the ashes after they began focusing on something that wasn t offered or done very well with the Microsoft Operating System, which was great graphics. Apple reorganized and realized not all business was about numbers and spreadsheets, it was also about the need for high resolution graphics and images. The Mac brought Apple back and their creativity continues to keep them up near the top with such things like the I-Pod and I-Phone.

All of these thoughts ring in my ears when I look at what our financial regulatory bodies, the Commodity Futures Trading Commission (CFTC) and the National Futures Trading Commission (NFA) are doing to the Spot Currency Markets in the U.S. This product is in direct competition with Currency Futures as they are basically the same instrument. Banks opened the doors for small investors to invest in their Spot Currency markets as an alternative to Currency Futures Trading. Uh oh competition!! Spot Currency gave small investors a chance to learn by giving them the luxury of choosing a beginner risk tolerance or an advanced, professional risk tolerance (simple idea but very smart!!). Currency Futures only caters to the advanced, professional risk tolerance type. Once a Spot Currency client finds a suitable risk value to fit his/her personal goals they can choose to open a live account with as little as $250 to $2500 in their beginner status (again, simple idea but very smart!!). If they excel, they can move up to the advanced levels. Most Currency Futures firms require at least $2500 to start, but in reality $25,000 is needed if you want to compete effectively. Mmmm, would I rather risk $250 to learn or $25,000? Spot Currency Firms also pay their sales team better. What a concept-something good for the client and good for person that sells the product!

Since the beginning of my career in 1989, I have watched brokers and sales teams lower their commission fees almost every year. The Federal Reserve tries to keep inflation pegged around 3% a year and the Futures industry continues to lower fees to fight off competition. Is this a strong business model? Sounds like Financial Fear Running Amok as my 3rd grade teacher used to say!

Obviously the Spot Currency business started to boom with the small investor and in some cases it is even becoming the preferred place to trade for advanced professionals because what is offered. Spot Currency Firms like FX Solutions provide free, real-time charts for all markets they offer and free real-time news feed. The free execution platform (the system that allows the individual to place buys and sells from their own home computer) also comes with built-in stop parameters and algorithms to help provide great flexibility while at the same time protecting you and your account. In order to get the same equivalent package in Currency Futures you will face subscription fees of $700 to $1500 per month from third party vendors to do what the Spot Currency platforms offer for free. Listen up third party Futures charting and execution platform vendors, your competition is breeding free software. Yikes! Through competition and creativity Spot Currency companies realized they could offer something to clients that was being forgotten, just as Apple and Steve Jobs did with the Mac. These creative Spot Currency companies are now being faced with regulations that I am wondering whether it is coming from a space of Financial Fear or Financial Health?

I mention all of this because U.S. Spot Currency Firms were hit by regulatory reform to adjust their platforms back to Stone-Age proportions 6 months ago to get back in line with how Currency Futures platforms are built. Was this Financial Fear or Financial Health? Just last month a new reform was put on the table, 10:1 leverage. Spot Currency Firms were originally allowed to offer their clients the choice of up to 400:1 leverage in the U.S., which basically means for every $400 of risk value, you were required to put up $1 of margin. Pretty good bang for your buck, right? With the proposed 10:1 leverage, I will need to put up 25 times MORE to get the same results. Here s an example at beginner level settings over a 24-hour span: 400:1- put up $4 margin to have the potential to make $10 to $20 per contract; 10:1- put up $100 to have the same earning potential. At the advanced levels it becomes even more drastic: 400:1- put up $400 margin to have the potential to make $1000 to $2000 per contract; 10:1- put up $10,000 to have the same earning potential. Oh, I just fell off my chair and from the floor I ask again, Financial Fear or Financial Health? Don t worry I know the answer to this one: it s a rule to push out the competition. It s no wonder why Spot Currency is moving to overseas companies. The United Kingdom has a regulatory body called the Financial Services Authority (FSA) and they aren t holding those terms to the Spot Currency Firms. Sounds like a Financial Health choice by the FSA.

Every time we recover from a depression or recession, it is generally the small businesses that lead the charge. You don t squash competition by enforcing regulations on them, you promote creativity. It s time for big business and regulatory agencies to step up and spend dollars on creativity again. Keep a watchful eye and drive the cheaters out, but give hope to individuals that are chasing the American dream, just like those two guys found when they built their operating system in their garage back in the 70 s. Creativity will always win the race!!

Creativity is at your fingertips, GO GRAB IT!!

Trading Commodity Futures and Over the Counter Foreign Currency (Forex) contracts may not be suitable for all investors. You may lose a substantial amount of money in a very short period of time. The amount you may lose is potentially unlimited and can exceed the amount you originally deposit with your FCM. The material on this website is intended for educational purposes only.