NEW Proposed Amendment to NFA RULE (2.43b)!
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Hi All,
As part of our due diligence on the NFA's "anti-hedging" rule from April 13 (NFA rule 2.43(b)), we have been informed of a follow up or clarification from the NFA. We have not been able to get the NFA to confirm or deny, but we have heard from multiple independent sources.
The NFA has informed the clearing firms that they will need to use First In-First Out (FIFO) accounting for retail traders. This has an important effect on all traders, but specifically MetaTrader4 users!!
FIFO accounting means that if a trader has a position in a currency pair that was formed by the combination of two orders, when the trader goes to close out a portion of that position, the first order in will have to be the first order closed. HUH? Here is an example of the new ruling:
Trader bought 100,000 EUR/USD this morning (call it the morning trade), and bought another 100,000 this afternoon (call it the afternoon trade). So the total position is 200,000 EUR/USD. When the trader chooses to close part of his position by selling 100,000 EUR/USD......the trader must close the morning trade. He/She can not close the afternoon trade before the morning trade. Sooooooo.....
This ruling will significantly affect the use of Stop Loss and Limit Orders on open positions. Think of it....in the above example, you would not be able to put a Take Profit order on your afternoon trade until/unless you had closed the morning trade; the closing order of the open trades must be FIFO! Without some complicated changes being made to the coding of the retail FX platforms, the clearing firms will have to eliminate the use of Stops and Limits.
This clarification (once confirmed) will effect almost all trading styles, but specifically effect the following strategies:
- Martingale
- Grid Trading
- One Cancels Other (OCO) orders
Please note that the above is in addition to the main part of rule 2.43(b) which eliminates hedging for retail traders.
Please don't hesitate to contact me with any additional questions via PM.