New NFA Rules and what they mean to you


Too Bad!!

Is NFA worsening the recession or making it better? The whole stuff smells like a "mafia" work. How could NFA discourage hedging? I believe America is now on the verge of collapse! Talk about people loosing their money! Too Baaaaad!!!!!!


First, thanks to Pharaoh for an excellent post and for all the work you do here.

As a trader for over 5 years, with 3 in Forex--and as one who likes to hedge--I am really bothered by the prospect of an arm of the US government making rules without asking ME as a trader how I feel about them.

Most of my personal experiences over the years with government authorities have not been good. Having been in business for over 30 years now, I can say that most often they do not act in our own best interests.

Now with the Patriot Act, the Constitution seems to no longer apply. It used to be innocent until proven guilty. Now you must prove yourself innocent, especially if the transaction involves money. The bureaucrats are empowered to seize (steal?) funds without cause and then keep them! Of this, I speak from personal experience.

It may just be a matter of time before the NFA exercises the Patriot Act and "enforces" it in Forex.

In the meantime, I am very happy with a broker that has built their entire business model outside of all these restrictions. With this broker you can hedge, they are not subject to the capital requirements nor will they be affected by any future rulings of the NFA.

As an added bonus, they also offer STP.

The broker is Gallant FX and I have spoken directly with the CEO. They are very open to work with clients and actually help them to be successful. It is difficult enough to trade and make a profit. I appreciate the peace of mind I have with Gallant knowing that there are no worries in the future that could jeopardize my ability to trade my way.



Well.. I don't use hedging.. (Well I used it just twice last year and just once was helpfull) and I don't mind it being restricted.

But What I like is this:

For positions established after June 12th, brokers are greatly restricted from making price adjustments to client orders. There are only 2 exceptions.

First, if a customer disputes a price, adjustments may be made, but ONLY in the customer's favor.

Second, if the broker has an exclusively straight-through processing model and the liquidity provide makes a price adjustment. In these cases, the customer must be notified within 15 minutes. Yes, that is 15 minutes from the order being executed to send a notification to the customer. Save those emails with full headers – you may need them to prove that they waited 20 minutes to notify you. If the broker isn't exclusively STP, then they don't even get 15 minutes.

God.. I wish I can register with NFA regulated broker.. After many people I know got price adjustments without any reasonable explanation.
It became one of my big fears.. Coz it happened with brokers that seemed to have good reputation..
But my bad luck.. I can't benefit from it.. Coz I'm from Syria and can't register with us companies..

Do You know any other non-US strict regulator like NFA??
Coz other authorities like FINMA are mostly concerned about money laundry.. and they don't seem to care much..

By the way.. what "STP" stands for?? something concerning spike-trading?
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By the way.. what "STP" stands for?? something concerning spike-trading?
"STP" stands for Straight Through Processing. IOW, no dealing desk.

FYI, just because a broker is registered with the NFA, it really does not guarantee that much. It's great to have rules but how will they be enforced? That is the real question. More than likely the NFA is under staffed at best, especially in this economy.

It is important to note that registering with the NFA is optional.

Gallant FX has chosen its business model to be under the control of the SEC. To me that is stronger than being with the NFA.

You may want to contact them to see if you can have an account with them.



NFA Ruling - ATC Brokers Won't Comply with NFA

Thank-you Pharaoh, your opening the eyes of many... Probably 70% of FXCM 's patrons trade hedge in one way or the other.. If we all move to European Brokers, the American Brokers losses will be significant.. Let's all unite and leave, there is strength in numbers.. At least ATC Brokers (an American ECN Broker) is allowing hedging after May 25th 2009 I think I'll stay with them because of their non-compliance with the future NFA ruling.
So not all are complying.


Private, 1st Class
Is this also hedging ?

Hi everyone,

I haven't yet read new NFA rules about hedging, but we're trading pairs of currencies so...

is this (below) also hedging ?, I ask this because I haven't try it yet and haven't read that sick NFA rules in details:...

Say I go long 1 lot EURUSD.
Now get this: EURUSD is equal of EURGBP times GBPUSD or EURUSD = EURGBP * GBPUSD. Check that out if you don't believe it.

So to hedge 1 lot long EURUSD, I short 1 lot EURGBP and also short 1 lot GBPUSD.

It cost 1 lot more but still can be done on one live account and not two.

Or use another pairs, say USDJPY and EURJPY.

So to hedge long EURUSD we short on EURJPY and long on USDJPY.

Is NFA call this hedging too ?

I'm not worry about hedging, I'm much worry about NFA small leverage instead.

I think they don't want us to play currencies anymore.
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Private, 1st Class
If NFA bans hedging, NFA will be banned -- and be replaced by FPA, A.M.E.N.

Thanks for the info and outrage Pharaoh!!!

just sent my flame to:

Dear NFA,

Before I learned to hedge forex 6 months ago, I lost $2500. After I learned to hedge forex, I made $3000, leaving me with no loss, and a nice $500 profit. The $30 in interest I paid in order to hedge, was my insurance payment, which I then handily made back, as I then still had money to invest.

Now all the sudden, the NFA which is supposed protect the consumer, comes out and says "in one month, hedging will be banned", for my own good. I beg your pardon? Not only that the diarretic NFA language cannot even be understood by anyone, as many theories as to what the NFA means can be found in the comments at: No More “Hedging” for Forex Traders : The Essentials of Trading

Why is there is no comparable public discussion page on the NFA website? At the above blog link, an NFA representative says the following:

National Futures Association appreciates your input and concerns about NFA Compliance Rule 2-43(b). We adopted the rule only after evaluating several alternatives (including disclosure), requesting comments from all of our Forex Dealer Members, and considering the comments we received from those firms and from the public. After careful analysis, we concluded that requiring positions to be offset provides the greatest degree of customer protection and that any burden it imposes is justified. You may continue to take opposite positions as a result of separate trading strategies as long as you do so in separate accounts.

Where is the table outlining the Pros and Cons and how the NFA made this decision with such "careful analysis"? How is it that NFA thinks that for my own good that "any burden it imposes is justified". That losing all my money because of a margin call because I could not margin, is justified and for my own protection? I'd say protecting myself FROM the NFA is worth any burden. Has this NFA representative ever traded before? Please tell your "analysis committee" that hedging in two separate accounts, will still lead to a margin call, and therefore lead to much more than a "burden". And for what purpose?

Speaking of purpose, what is this "message from God", dictatorial attitude from the NFA? Why no discussion pages for these consumers that the NFA is supposedly so concerned about? Who regulates the NFA? I hope it's just the market forces, because the NFA is a joke and has just written their epitaph. No one has any respect left for the NFA. The NFA has become the laughing stock of the Forex community. Do a search. It's like the EPA dumping pollutants and while they preach about clean water.

The following link,, is for the Free Forex Trading Community With Forex Signals And Broker Reviews discussion entitled "What's the NFA up to?" The FPA is what the NFA should be. The NFA apparently collects dues from it's broker members, and therefore works for them. In contrast, the FPA does a great job, doesn't charge a cent to it's members and makes it's money with advertising on the site. Too bad the NFA isn't as efficient. I'd go with an FPA approved broker before an NFA approved broker any day.

I'd like to know the exact names, positions and affilations of the NFA people who ramrodded this through. If they are so proud of their regulations, then they shouldn't mind seeing their name next to it, so that people can analyze their possible conflict of interest in "looking out for the consumer", as appears to be the case here.

Marjorie Miller :confused:


Private, 1st Class

Thanks again Pharoah! Below are some emails on the no "direct-hedge ban" absurdity that might inspire some fellow enraged traders!!!!!

from Marjorie Miller <>
date Thu, May 14, 2009 at 4:29 PM
subject Postpone "direct-hedge ban", add discussion forums to NFA and CFTC websites, and Listen

hide details 4:29 PM (14 minutes ago)


Follow up message
Hi President Obama,

I know with your quick mind, this will appear obvious on first read. Please explain this to the CFTC and the NFA. Apparently, Michael Dunn and CFTC Commissioners report to you directly.

In particular, I thought you would find interesting the analysis of how the words "Hedge Fund" has become a bad word, ironically because they didn't hedge. To Hedge means "to limit risk". One way to do that is have investments that go in opposite directions, one making money while the other loses money, until the losing position recovers, never being left with an empty basket. But unfortunately, due to the fact that "hedging" has now become a bad word, the CFTC and NFA want to ban "hedging". They want to ban "limiting your risk", when we should be demanding that risk should be limited.

Thanks again for your hard work. I'm trying to participate, though I am way too busy!!!! :D!!!

Marjorie Miller

p.s. Loved the poetry jam. Michelle's outfit was gorgeous too!!! :)!!!!

---------- Forwarded message ----------
From: Marjorie Miller <>
- Hide quoted text -
Date: Thu, May 14, 2009 at 4:06 PM
Subject: Postpone "direct-hedge ban", add discussion forums to NFA and CFTC websites, and Listen


I just spoke with Delores at Michael Dunn's phone number. I do not understand why the NFA or the CFTC websites do not have discussion forums on their websites, and this appears to explain why the NFA and CFTC are so out of the loop as far as the opinions of their "customers". I would suggest you add one immediately. As a software engineer, I can tell you, a discussion forum can be added to a website in less than a day. There's no reason not to have one, unless of course, you don't care what people think.

Attached is my email to Tom Sexton. Pardon the insulting tone of the email, but the letter from Tom Sexton of the NFA to David Stawick of the CFTC, that is all over the web now, began the insulting tone. Tom Sexton does not appear to understand hedging and trading algebra, and so he has accused ordinary American Traders of not understanding the basic algebra of hedging. He passed draconian regulations, with absurb notions of "banning hedging", which is mathematically impossible and undesirable. Hedging has ironically become a bad word, because hedge funds did not hedge.

The CFTC needs to stop this absurd "direct-hedge ban" only, or take it to the limit and restrict accounts to only one trade at a time, because mathematically, that is the only way to ban hedging. Banning the "direct-hedge", as describe below, will hurt the inexperienced traders the most, as they will not know how to do an "indirect hedge", and will lose every cent they have with a margin call. The rest of us will frantically be calculating "indirect hedge" positions, or buying software that does it, because it is just plain stupid to not have a "Hail Mary" hedge strategy. Period. Unless you don't mind losing everything you own, as Tom Sexton appears to be advocating.

Tom Sexton and Davic Stawick are apparently not traders and do not understand trading. I challenge them to say what a trader should do when approaching a margin call, not eliminate one of their options, "direct hedging". If his answer is to "not hedge", then it is this stupidity which has caused the economic collapse of this country. I think anyone making regulations about trading should be forced to have a trading account, and show their results and strategy. Let's give Tom Sexton an account approaching a margin call, and see what he does. Will he lose all his money, or live to trade another day? Has he an alternative strategy besides hedging that he'd like to suggest? We're all waiting to hear it, but according to another letter on a net discussion forum link below, the NFA representaitve merely says "we've decided protecting the consumer from hedging is worth any burdens they are forced to bear." I kid you not. Now let's parse that. To Hedge means to "limit risk". Losing every cent in your account in a margin call, is worth protecting the consumer from "limiting their risk". I will be describing this to President Obama. I'm sure he'll understand the contradiction in 2 seconds.

Please postpone this ridiculous regulation, add discussion forums to your websites, and let us find logical solutions to whatever problem Tom Sexton thinks he's fixing, with feedback from the community. Why is it that I can go to Welcome to the White House and interact with the President of the United States, easier than I can communicate with the NFA and CFTC?

Marjorie Miller

p.s. Why only phone numbers and no email addresses on the CFTC website? Please get a copy to David Stawick, who appears to only accept Federal Express, in the 21st century.

- Hide quoted text -
---------- Forwarded message ----------
From: Marjorie Miller <>
Date: Tue, May 12, 2009 at 6:09 PM
Subject: Notice of Pending Class Action Lawsuit

Tom Sexton,

I read your letter in which you basically said ordinary American do not understand basic algebra, so you are "outlawing hedging". First off, all you have outlawed is "direct hedging", with the idiotic reasoning that, since the teapot wastes water when the whistle goes off, you should remove the whistle. What hedging does is prevent the teapot from blowing up. You seem to want to save a dime to lose a dollar. I don't get your reasoning. So let me ask you a question: What advice you would give to a trader, which apparently you are not, you are an attorney. But let's just pretend you're a trader. Let say you are approaching a margin call, or the market started moving fast and you needed a moment to think, or say, your bank and broker takes 2 days to add to the margin in your account. Now that you've outlawed "direct hedging", the solution is not as easy or as simple. Before Tom Sexton came along with his great idea to ban hedging, you could just hedge and take care of business and then unhedge, not losing your margin or alot of money in the process.

You have not prevented that from happening. You've just made it so it's going to happen to the very people you say you are protecting: the inexperienced. Indeed, I certainly needed the direct-hedge "Hail Mary" play when I first started out, glad it was there, and have continued to use it profitably. But now I have been forced to figure out how to do "indirect hedging", by triangulation and negatively correlated currencies, much more difficult mathematics and timing between many different currencies to get a "hedge", to temporarily stop the bleeding while you think of a new strategy, Plan B. Indeed, the hedge is Plan B, the new strategy is then Plan C. You have just stolen Plan B. So I guess this is just your plan to steal from the newbies. Or your own stupidity of the consequences.

Any loss by the EURUSD must be equal to the gain in the USDCHF and the EURCHF, or any other roundtrip currency. This cannot be outlawed any more than E=mc2. It is a mathematical fact. So the hedge can always be done. Except by newbies now in your new scenario. And the rest of us will be wasting our time and money on complicated hedging formulas like THE HOG2 CUSTOM INDICATOR SNEAK PREVIEW. Just because you and a few people in your office either don't like hedging, or do not understand. You may just say put more money in your account, but that is not always an option for people who cannot legally print money, or even possible to transfer in the timeframe of the bank and broker, and the fast moving market. Sometimes you've got just enough time to do the hedge before a margin call, or perhaps you'd just like to stop the bleeding so you can think about whether you should "amputate" the trade, or wait for it to grow back, as the case may be. Or do little trades to build up your margin while waiting for the market to turn around on the bigger temporarily losing "hedged" trade.

And though your new rule against bad feeds works in my favor, I still find your "logic" and "solution" nothing short of stupid. So again, I shall only ask you a question which always begins with, "What would you do if you were in someone else's shoes?" Do you just pass regulation, or do you try to fix problems? Let's say the brokers tell you they get "bad feeds" so sometimes they have to requote customers. So you just outlaw bad feeds and any requotes after 15 minutes. So let's say you're a broker and you get a bad feed, which means you owe 5 zillion dollars to alot of people. Now this was caused by a spike by the electric company or Internet provider, external in origin. Your IT guy is in the bathroom, 15 minutes goes by and you are out of business. Now I would have thought a more appropriate response would be to investigate the "bad feeds" problem, and a methodology of reporting them and investigating them and limiting their occurrence. A minimum "standard" for feeds perhaps. Customer reparations for a "bad feed", which would discourage them.

I find no constructive thinking in your entire letter and I think you should be fired for this fiasco. Indeed, you haven't even achieved your goal of outlawing hedging. In order to do that, you would have to outlaw having two positions in the same account which are going in the opposite directions, one taking a profit and the other taking a loss. And what about if someone takes a forex option in the opposite direction as their spot, thereby achieving a "virtual hedge"?

Indeed, it is stupidity like yours that got this country into the situation it's in, companies going balls to the walls with no hedge whatsoever. Not having a "Hail Mary" play for the last two minutes of the game, when you're behind, it just plain stupid. So now the NFA is trying to make everybody else as irresponsible as the banks have been.

Well in order to fully outlaw hedging, you will have to outlaw carrying a negative and a positive position in the same account. You'd have to outlaw owning negatively correlated currencies in the same account. To not be a hedged account, all positions would have to be losing, or all would have to be winning. Always. Since this could not be guaranreed, mathematically this means that you will have to outlaw having more than one trade open at a time in any account. Don't you have anyone at your office with any critical thinking skills?

This is what I mean. Simply by assuming you are correct, that all hedging should be outlawed, leads to preposterous contradiction, so the proposition has to be insanely incorrect. You cannot even succeed, nor would it be logical to even want to try to prevent all hedging. You have only made it more difficult for the beginner to hedge quickly, thereby putting them in more danger not less.

When the teapot whistles, you should listen, not kill the messenger. I suggest you put yourself in the shoes of a trader or a broker next time you think of regulations. Try to think of regulation which becomes good advice, not bad advice. You've basically told traders that it is better to lose your entire margin in a market panic, than to hedge and trade another day. Ask yourself, what would I do in that situation, instead of outlawing the moon to prevent werewolves.

Did you see the history channel show on how Robert E Lee lost the Civil War? He didn't take his Lieutenant's advice and return to fight another day. You need to restore the "direct-hedge" capabililty to NFA brokers, and re-think the draconian "bad feeds" solution which could put brokers and ironically then the traders which you are supposedly protecting out of business.

Speaking of, will brokers also not be allowed to hedge? OMG. I'm afraid that someone like you has passed a draconian regulation like this with so little forethought, and might I add, no place for "consumer input and discussion" anywhere on your website. I will be copying this email to the CFTC and David Stawick, and I will even submit your stupid letter and diarretic regulation wording to Welcome to the White House. And don't forget, the Presisdent appoints the CFTC commissioners to which you and David Stawick report to.

Not to mention, President Obama will wonder why the NFA can't even write in plain english like the credit card companies. Just take a look at this blog, http://www.theessentialsoftrading.c...more-hedging-for-forex-traders/#comment-14177, or the ForexPeaceArmy or a google, to see the kind of confusion the NFAs diarretic language has caused. I have a degree in Math and Physics and have been a computer programmer for over 25 years, and I find it interesting that the NFA chose language to attempt to cloak what it was doing. People and companies are still trying to figure out what the new idiotic NFA no hedging rule means. I personally and many other have started shifting our accounts to non-NFA and/or FSA UK accounts. The FSA has been around longer than the NFA and will be around long after the NFA self-destructs. I find it funny that Americans are now running back to England to get their rights back from unreasonable and unresponsive dictatorial agency like the NFA.

Go ahead and read about why people would want to hedge and will continue to hedge, at Forex Hedging - Introduction to Forex Hedging. And to read about the really confusing cross-currency hedges mathematics and timings that people will have to do now, rather than simple direct hedging, at\PDF\CFTC\CR2_43_ForexPriceAdj_112408.pdf.

It appears you Tom Sexton, do not understand either the lack of economic benefit or the financial costs involved, in NOT hedging. Indeed, I think the reason "hedging" got banned is because of the "Hedge Funds" losing money and becoming a bad word. The word "Hedge" means "to limit risk". The fact that the "Hedge Funds" did not do a good job of "limiting risk" does not mean "limiting risk" is a bad idea, or, that you can or should outlaw "limiting risk", or "limited risk funds", as they should and probably will be called, in order to make terms more clear.

I also note that according to your letter, the "hedge ban" was not initiated because of any customer complaints. Well, it seems you are getting alot now for banning what no one was complaining about, and you're going to get alot more when people start margining out and losing thousands of dollars to save a few dollars in your interest charges, which I see as insurance loss charges. I will tell you right now, Thomas W Sexton, General Counsel and Vice President, if I margin out, because of your new no hedge rule, I will sue the NFA, and you personally. Indeed, it will be a class-action lawsuit. So I suggest you listen to your customer complaints, and while we're discussing that, I am also reporting the NFA website to Welcome to the White House. Why is there no customer feedback/discussion/forum page on the NFA website? You tell of random, unnamed "commentators" from whom you got your advice. I'd like to see a copy of all the advice and discussion/emails from people that you received from people, and I don't know why you don't have more on your website, for an issue than is currently burning across the web. Is the NFA oblivious to the unrest and displeasure it has caused it's supposed customers? You're not going to get just complaints, you're going to get lawsuits.

I don't call many people morons, but this is beyond stupid. You are plain dangerous and need to resign from your job Mr Sexton. Or get better advisors.

I have just finished moving one account to the UK. I feel better already. I wonder how many US forex workers will be laid off because of your decision to not listen to what the brokers were telling you, and even ask your "retail customers" what they thought.

I'm sorry, I am thoroughly disgusted. You have wasted alot of my and everyone else's time. Please submit your resignation, or "unfix" what you have just broken. I still don't know if I'd trust you at the wheel again though. But maybe, just maybe, you could learn to listen, and then maybe you would learn alot.

Marjorie Miller
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