On April 29th, I wrote an article about
some new NFA rules . They ended hedging with NFA registered brokers (bad), and also restricted the ability of brokers to wreck profits by claiming price feed errors (extremely good).
Everyone was so focused on the hedging part that some of the implications of the wording got overlooked. There was a little detail about FIFO (first in, first out). I assumed this was only talking about hedges. Evidently, the NFA FIFO rule has some more implications. FPA member Pratomo posted
some info from FXCM about the problems in the forums 2 days ago and I've done a little more digging. I don't think most forex traders are going to like how this will affect trading with NFA registered brokers.
It seems that the NFA plans to apply FIFO to
ALL positions on a currency pair., not just old hedged trades This means if you have 2 separate sell orders on the USDJPY, you can't close the 2nd one you opened before closing the first order. You can only close them in the order that you opened them (or all at once). No more running a long- term strategy on an account and using the same account for a little bit of day trading. I don't know if this was something the NFA intended or if it's something that one of their over-zealous regulators suddenly realized he could foist off on on all of us by deliberately misinterpreting the original intent of an already poorly designed set of regulations.
It gets worse. Much worse. Stop losses and take profits apply to individual orders. If this is implemented, you won't be able to set a proper stop loss or take profit on any platform with an NFA registered broker after July 31st, 2009. Some platforms allow you to set up a pair of OCO orders. These will act as SL and TP, but only for the size of position you set them to. If your total positions on a pair comes to 2.4 lots, you'll need to set your OCO to 2.4 lots if you want everything to close. There are 2 drawbacks. First, you need to set up the OCS (or set of OCOs) to the correct amount to cover all your positions without going over or under. Second, if you miscalculate your risk and get a margin call before hitting the OCOs, those OCOs will still be waiting to be activated, thus risking a 2nd margin call.
And finally, the worst of the worst for those of us who really like to use MT4. MetaTrader 4 doesn't work this way. Currently, brokers don't seem to accept pending orders that would make your position on a pair neutral because of the NFA's anti-hedging rules. The end effect of this is that if you trade with MT4 and open a second position on a pair, there won't be any way to set a stoploss. Unless the people at MetaQuotes do something about this, you probably won't be able to have a stoploss on even a single position.
Since SL, TP, and the ability to close individual orders in any order are built into MT4, it is possible that NFA regulated brokers may not even be able to offer trading through MT4 starting on August 1st, 2009.
If this rule happens and MT4 remains usable, the only thing I'll be using any of my NFA brokers for is long term, super-low leverage position trades. All the rest of my trading will be moved to non-NFA brokers outside the USA. If they really wipe out MT4, I'll be defunding my USA accounts and moving everything offshore (ok, I'm “forex platform challenged” and I admit it).
The NFA claims that these rules will make it easier to keep track of their positions – even though this strips out stoplosses from MT4 and complicates them on other platforms. It looks like the NFA wants it to be easier to see why traders get margin called rather of helping traders prevent margin calls.
Is the NFA really intend on destroying retail forex in this country? Do they really want to take money out of the USA and send it overseas? I don't know what they really mean to do, but it's not hard to see what the real consequences are. My only hope is that someone in charge at the NFA realizes that this is an amazingly stupid thing to do and stops it from happening.
Last time I suggested contacting the NFA and throwing a screaming fit. This time I encourage it:
Email:
information@nfa.futures.org.
Chicago Headquarters
300 S. Riverside Plaza, #1800
Chicago, IL 60606-6615
(312) 781-1300
(312) 781-1467 (fax)
New York Office
120 Broadway, #1125
New York, NY 10271
(212) 608-8660
(212) 964-3913 (fax)
If the NFA doesn't back down on this, all normal methods of dealing with risk management in MT4 are gone, and methods in many other platforms will become much more complicated. Some NFA registered brokerages do offer accounts to US citizens at their FSA regulated UK branches. It should be interesting to see how quickly more of them do this and how much money ends up moving to the other side of the Atlantic.
Previously, I'd always been firmly in favor of selecting an NFA regulated brokerage. If this really happens, I'll have to change my advice on this.
New NFA Rules
Pratomo's posting with info from FXCM
FAQ on FIFO at Daily FX
My article on Risk Management – for use with brokers that can legally offer stoplosses
My article on the problems with the NFA's anti-hedging rules
Does the NFA plan to destroy MT4 in the USA? -
07-05-2009, 06:41 PM
Thank You So Much Fpa.... -
07-05-2009, 07:14 PM
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