Offsetting transactions - NFA rule 2-43(b)
What the hell! How that it can be?
It may just apply to futures, or Metaquotes may (perhaps already) do some fancy footwork in the software they supply to brokers so that the position reported to MT4 is different to what the broker reports internally. If not, a lot of EAs are going to break and, separately, a lot of people are going to start seeing some numbers in their account balance and in their backtesting which they're not used to, because much of the distinction between account balance and account equity will be removed.
Does anyone actually know what's going on with this?
Anyone read anything about this: http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=2273 ?
Am I right in thinking that US-based brokers are now going to be required to treat a long order for e.g. 1 lot followed by a short order for 1 lot as a close? In other words, you could do two OrderSend()'s but get the equivalent of an OrderSend() and an OrderClose() ?
If so, isn't this potentially going to kill any EA because, if you run two different EAs on the same symbol within the same account, their orders will potentially interfere with one another if they're in opposite directions. In fact, given the first-in, first-out bit of the rule, two EAs on the same symbol can potentially interfere even if they're both going long or both going short. Let's say the EA #1 goes long, and then EA #2 goes long. EA #2 closes its position first. The first-in, first-out rule ought to mean that it's EA #1's order which gets closed. It even potentially kills a single EA which places two orders, and closes out the later one first.
Or is this all purely forex futures rather than forex?
The End of Hedging Strategy History,
Interuption to the Market just make Messier
The End of Hedging Strategy History,
Interuption to the Market just make Messier
Well, perhaps. I'll throw in another possible interpretation of the rule: you place two long orders, with stop-losses. The later of the orders has a tighter, higher stop-loss than the earlier order. The "first-in, first-out" part of the rule potentially means that order 1 gets taken out at order 2's stop.
Does anyone from Metaquotes want to comment on this?
I read this as:-
a) Applying to futures
b) Prohibiting the broker from taking opposite positions (and thus hoping or encouraging the clients position to lose)
c) Allowing the client to hedge by request
d) Prohibits the broker from fiddling with the order without informing the client
I dont see this as a problem?
But then I'm not into futures!
-BB-
I read this as:-
a) Applying to futures
b) Prohibiting the broker from taking opposite positions (and thus hoping or encouraging the clients position to lose)
c) Allowing the client to hedge by request
d) Prohibits the broker from fiddling with the order without informing the client
I dont see this as a problem?
But then I'm not into futures!
-BB-
I'd like to think you're right, but I've had a mainstream US broker tell me that typical grid systems - i.e. the kind which go long above an entry point and short below it, waiting for a decisive move in either direction - will almost certainly require amendment to their code to stop them breaking when this rule-change comes in. If that's correct, then it can have knock-on implications for almost any EA which has more than one order open concurrently. Hard to believe it's true, but that's what I'm hearing so far.
This bit of the rule - "A customer may, however, direct the FDM to offset same-size transactions even if there are older transactions of a different size" - may or may not provide the get-out clause for orders in the same direction getting closed in reverse chronological order. But even then there's still a potential problem with multiple EAs interfering with each other's orders.
If nothing else, I'm pretty sure that whatever the rule turns out to mean in practice, it applies to more than just futures. I think it applies to any broker who's regulated by the NFA. Again, that's what I'm being told by a non-futures, NFA-regulated US broker. Is all currently believed not to apply if your account is opened through a foreign arm of a US broker.
I just got notice from IBFX that, as of May 8th they will not allow hedged positions any more - to comply with this new rule. They didn't give any specifics about it, just suggested that you use a demo account to make sure your code works without a hedge. I suspect that other US brokers will be sending similar notifications in the near future.
JC is probably correct (other post) that this will drive some business overseas since this will break grid EA's for sure and many others as well.
Seems as though the US government is doing all they can to make it hard to do business - for no apparent reason. That's what happens when politicians need to do something to show that they are protecting their constituents - and don't know what else to do.
Yeah, this will fix the problem. We would never have had any financial problems in the US if we had this rule last year, right?
From my interpretation, the rules are restricting what a broker can or cannot do.
There is no reason why the NFA would attempt to stop a client from hedging his own positions. If a client wishes to open more positions and spend more on spread, why should it concern anyone else?
Here is an email from IBFX:
Dear Customers:
Interbank FX, along with all FCM's, has received information from the NFA that we
wanted to pass along to our customers. All registered FCM's have received a new
Compliance Rule 2-43 regarding forex trading. On May 15, 2009, forex customers will
no longer be allowed open "hedged" positions in their accounts. Please see an excerpt
from the new NFA rule below. If you are currently using Hedging as a trading strategy,
we would encourage you to use the Interbank FX Demo accounts over the next month
to help modify your trading strategy. Also, for those of you who utilize hedging
strategy with your "Expert Advisors", we would encourage you modify your code and
test your advisor on the Interbank FX Demo servers as well. In order to assure a
smooth transition for our customers to the new NFA Compliance Rule, Interbank FX
has set May 8, 2009 as the last date that customers will be able to Hedge open positions.
So, it's a client problem.
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Anyone read anything about this: http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=2273 ?
Am I right in thinking that US-based brokers are now going to be required to treat a long order for e.g. 1 lot followed by a short order for 1 lot as a close? In other words, you could do two OrderSend()'s but get the equivalent of an OrderSend() and an OrderClose() ?
If so, isn't this potentially going to kill any EA because, if you run two different EAs on the same symbol within the same account, their orders will potentially interfere with one another if they're in opposite directions. In fact, given the first-in, first-out bit of the rule, two EAs on the same symbol can potentially interfere even if they're both going long or both going short. Let's say the EA #1 goes long, and then EA #2 goes long. EA #2 closes its position first. The first-in, first-out rule ought to mean that it's EA #1's order which gets closed. It even potentially kills a single EA which places two orders, and closes out the later one first.
Or is this all purely forex futures rather than forex?