Why the volumes of trading has been very low since past 2 days?

Broker defaults due to aggressive risks taken should actually reduce after this rule. If you look at brokers who have gone bust, giving excessive leverages is among a bunch of wrong things they did. One large customer taking 100 times leverage can potentially bring a broker down easily if the market moves against this customer on one fine day and client defaults.

But that said, this additional leverage was also how a lot of brokers were earning revenue. So they will not default, but over time running the business will become tougher unless they find other ways to add revenue.

By investors, I am guessing you mean day traders. This rule doesn’t affect investors other than maybe liquidity reduction in the markets which might increase the impact cost for the investors.

But yes, I will agree after being in this business for 20 years. High crazy leverages is a weapon of mass destruction, the single biggest reason why a trader can’t profit from the markets. A trader might make money on a few days, but crazy leverages ( 50 times, 100 times, etc) you are just one incident away from blowing up - whatever was earned and more.

But the important thing here is “Crazy leverages”. 5 times which will eventually be the leverage, is definitely less.

My take on if intraday leverage should be allowed or not?

VAR+ELM or SPAN+Exposure margin computation doesn’t consider the difference in terms of risk based on if the market is open or closed. The highest risk is usually for an overnight position when the market can move significantly to factor in all the news from around the world at the market opening the next day. Hence VAR+ELM and SPAN+Exposure is justified.

But this risk reduces when the market is open as risk management engines of brokers can exit positions based on margin available and marked-to-market (MTM) losses. So maybe brokers should be allowed to offer some additional intraday leverage (some cap so it isn’t misused) over and above SPAN+Exposure or VAR+ELM as long as it is funded by the broker’s own capital.

But yeah, lower leverages while it might be negative in the short term for brokers & intraday traders, it is positive for the long term as the probability of intraday traders winning will improve with lower leverages.

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