NFA FIFO Rule for FOREX
Metaquotes will have a fix for the MT4 platform to make it compliant with FIFO regulations. What is probably more concerning to MT4 users is how it will affect EA's. Even if the MT4 platform is able to close positions based on FIFO, it will still break EA's that trade multiple lots for a symbol and will need to be re-coded.
I agree that the NFA rules have sent everyone scrambling, but the fix that has been done at PFG allows EAs to work properly while still being compliant.
What NFA has done is absolutely ridiculous. On what grounds did they make the decision to enforce the No-Hedging rule. I just don't get it. This is one of the unnecessary regulatory actions that will definitely make the lives of traders more miserable, not to mention that it will break the standard of forex trading platforms and will ultimately waste hours upon hours of precious time working around this limitation.
The No-SL and No-Limit-Order story is satirical, the NFA boys should have known it. It is no brainer to understand the posters were being sarcastic. It points out the NFA's careless ratification with no proper studies and explanations whatsoever. It is no doubt that the ability of holding multiple positions of different direction is one of the core qualities of trading. It is no less important than the functionality of a stop-loss order or that of a limit order. How NFA could pass such a rule is speechless.
I would love some answers from those who wrote this senseless rule.
- Has NFA rigorously evaluated the implications of this No-Hedge rule?
- How will a trader manage a diversity of multiple systems used concurrently in one account?
- How will a trader know which position is that of a particular system(s)?
- After opening and closing several long and short positions at different prices at different contract lot sizes, how will a trader keep tracks of the changes when all he sees is a single position opened at an average price at a puzzling 3.78 lot size?
- Is it being suggested that an account should trade only a single system, and that a trader must open many more accounts to accommodate his system portfolio diversity?
- Last but not least, is it a bit too totalitarian to force all traders to conform to your narrow logic?
I would also love to hear some clarifications on the scope of this rule. Does this rule affect the actual execution of orders at the interbank level, at broker level, at presentation level, or at all levels?
Some brokers such as FXDD exploited this loophole and claimed to have worked around this issue by applying changes to their internal system, that may be the execution of orders at the interbank level, so that the end-traders will never notice a thing in the trading platform. Thus, the positions that present in the FXDD platform are virtual representations of a consolidated position. This exploit sounds fair to me.
If NFA opposes such loophole, I suggest forex trading platforms chain the word 'virtual' before 'trade', 'order' and 'position'; hence, 'virtual position', etc. Well, if that doesn't work, they might want to invent some new terms like 'poisition' (not sic) for use in place of 'position'.
Can the FDMs send a protest or something back to NFA? This regulatory body is now becoming a communist rogue robot like those in 'I, Robot'. Traders need your protection, NFA, but not this kind of treatment!
Metaquotes will have a fix for the MT4 platform to make it compliant with FIFO regulations. What is probably more concerning to MT4 users is how it will affect EA's. Even if the MT4 platform is able to close positions based on FIFO, it will still break EA's that trade multiple lots for a symbol and will need to be re-coded.
Unlike many NFA registered FDM's offering MT4, PFGBEST does not rely on the Backoffice techniques of the MetaTrader4 system. Because of this PFG is able to support EA's trading multiple positions per symbol. PFGBEST will be able to support all EA's in a regulated FIFO offsetting environment beginning. August 1, 2009.
What NFA has done is absolutely ridiculous. On what grounds did they make the decision to enforce the No-Hedging rule. I just don't get it. This is one of the unnecessary regulatory actions that will definitely make the lives of traders more miserable, not to mention that it will break the standard of forex trading platforms and will ultimately waste hours upon hours of precious time working around this limitation. The No-SL and No-Limit-Order story is satirical, the NFA boys should have known it. It is no brainer to understand the posters were being sarcastic. It points out the NFA's careless ratification with no proper studies and explanations whatsoever. It is no doubt that the ability of holding multiple positions of different direction is one of the core qualities of trading. It is no less important than the functionality of a stop-loss order or that of a limit order. How NFA could pass such a rule is speechless. I would love some answers from those who wrote this senseless rule.
- Has NFA rigorously evaluated the implications of this No-Hedge rule?
- How will a trader manage a diversity of multiple systems used concurrently in one account?
- How will a trader know which position is that of a particular system(s)?
- After opening and closing several long and short positions at different prices at different contract lot sizes, how will a trader keep tracks of the changes when all he sees is a single position opened at an average price at a puzzling 3.78 lot size?
- Is it being suggested that an account should trade only a single system, and that a trader must open many more accounts to accommodate his system portfolio diversity?
- Last but not least, is it a bit too totalitarian to force all traders to conform to your narrow logic?
At least PFGBEST and I am sure others contacted the NFA and voiced displeasure.. However, this looks more like the winds of change.
Please note that in Japan the Financial Services Agency curbed speculative trading by capping leverage at 50 times the amount of principle cash committed and as early as summer 2010 they will lower that to 25 times the amount of princple cash. Thus the banks in Japan are putting a stop to speculative trading. could England be next now that the US has been reigned in? I for one am for free market and speculation, but I also have to play by the rules.
Here is the official statement that shows how PFGBEST deals with FIFO on MT4 Platform.. If you want to try it out you can get a demo at PFGBestDirect.com - ECN MT4 Trading Platform
FIFO Rule Update - BESTDirect MT4
As you may be aware the NFA has made a new rule that prohibits registered Forex Dealer Members like PFGBEST from carrying offsetting positions past end of day ("no -hedging"). The rule will also require all positions to be offset in the order they were opened beginning August 1, otherwise known as 'First In First Out' (FIFO). There has been wide speculation among trade groups and clients what these changes may bring, to BESTDirect MT4.
We have spent the past couple months speaking with the NFA regarding these upcoming changes and we are happy to announce that we will continue to offer BEST Direct MT4 frontend without any changes. The changes that will be made will be in our Backoffice. As you know PFGBEST does not rely on the MetaTrader 4 Backoffice. Statements of record are generated for your clients from our proprietary Backoffice. This allows us to comply with the new FIFO restrictions and continue to offer BEST Direct MT4 with the same functionality available today. Clients will have the ability to place Stop Loss and Take Profit orders as they wish. When these orders are executed PFGBEST will process them FIFO in our Backoffice and allow the platform to offset conditionally. Below is an example of how the following transactions would look in both environments.
BESTDirect MT4 Platform
Client Buys 1.0 Lot (100,000) EUR/USD @ 1.3500 (Order #1)
Client Modifies Order #1; S/L (1.3400) and T/P (1.3600)
Client Buys 1.0 Lot (100,000) EUR/USD @ 1.3510 (Order #2)
Client Modifies Order #2; S/L (1.3450) and T/P (1.3550)
T/P for Order #2 is executed, Order #2 is offset
T/P for Order #1 is executed, Order #1 is offset
PFGBEST Backoffice
Client Buys 100,000 EUR/USD @ 1.3500
Client Buys 100,000 EUR/USD @ 1.3510
Client Sells 100,000 EUR/USD @ 1.3550
Buy @ 1.3500 (Order #1 is offset with Sell @ 1.3550
Clients Sells 100,000 EURUSD @ 1.3600
Buy @ 1.3550 is offset with Sell @ 1.3600
In this example the client is able to manage positions using the functionality of the platform. The orders are offset in a FIFO manner in the Backoffice.
The 'No-Hedging' rule has been in effect since May 15, and as many of you and your clients can attest the implementation of this rule by PFGBEST has had little affect on MT4 strategies. The FIFO rule implementation on the other hand will likely cause most NFA Regulated FDM's to change the way their MetaTrader 4 platform operates because the MT4 Backoffice doesn't have the flexibility to offset positions in a FIFO manner as required by the NFA and retain all order functionality. This is where our sales groups will have a distinct advantage over the competition. BEST Direct MT4 and PFGBEST made a decision 1 1/2 years ago when we began integrating our Straight-Through-Processing environment to our proprietary Backoffice. This will allow us to comply with regulations and continue to offer BEST Direct MT4 in the capacity we do today. Clients will be able to continue to use their Expert Advisors and trading strategies with out having to make any adjustments. Stop Loss and T ake Profit orders will be fully functional, including Trailing Stops.
PFGBEST will be holding Webinars to educate clients on the process that will be in place in our Backoffice. We will also be holding webinars specifically for our Introducing Brokers. Please feel free to join us to fully understand how PFGBEST is approaching this issue. We will be notifying your clients via email of the announcement as well as upcoming dates for webinars. We look forward to continuing to offer MT4 in a capacity that gives our sales groups and your clients the tools to remain successful within a stringent U.S. regulatory environment.
Interbank FX has good news for our customers! We’ve announced compliance with the new NFA FIFO rule, retaining all MT4 platform order functionality including expert advisors, allowing flexibility with your trading. Todd Crosland, Chairman and President of Interbank FX states, “Certain US competitors have decided that their solution to the new FIFO rules are to move their customers overseas, rather than being compliant.” We’ve created a seamless solution, see the full story here: Interbank FX Announces Compliance with the New NFA FIFO Rule, Retaining All Platform Order Functionality Including Expert Advisors
let see how that new fifo rules work
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As you are all aware the NFA has made a new rule that prohibits registered Forex Dealer Members from carrying offsetting positions past end of day ("no -hedging"). The rule will also require all positions to be offset in the order they were opened beginning August 1, otherwise known as 'First In First Out' (FIFO). There has been wide speculation among trade groups and more specifically Non Regulated Forex Brokers offshore what these changes may bring, to clients and Expert Advisors. Below is an email generated by the NFA to each of its Members, assuring that indeed it is not the interest of the NFA to eliminate vital risk management tools like Stop Loss and Take Profit orders. Furthermore, they will discipline any Member that is misleading investors with false information. It is of PFGBEST's and the NFA opinion that clients be able to continue to use these order types as a means of risk management.
The 'No-Hedging' rule has been in effect since May 15, and as many of you can attest the implementation of this rule by PFGBEST has had little affect on client strategies. The FIFO rule implementation on the other hand will likely cause most NFA Regulated FDM's to change the way their MetaTrader 4 platform operates because the MT4 Backoffice doesn't have the flexibility to offset positions in a FIFO manner as required by the NFA and retain all order functionality. There have been parties who have propagated fear among investors about 'not being able to use Stop Loss and Take Profit orders'. BEST Direct MT4 and PFGBEST.com made a decision 1 ½ years ago when we began integrating our Straight-Through-Processing environment to our proprietary Backoffice. This will allow us to comply with regulations and continue to offer BEST Direct MT4 in the capacity we do today. Clients will be able to continue to use their Expert Advisors and trading strategies with out having to make any adjustments. Stop Loss and Take Profit orders will be fully functional, including Trailing Stops.
PFGBEST will be holding Webinars to educate clients on the process that will be in place in our Backoffice. Please feel free to join us to fully understand how PFGBEST is approaching this issue. Clients of PFG will be notified by their brokers and by email of all upcoming instructional Webinars. We look forward to continuing to offer MT4 in a capacity that gives clients the tools to remain successful within a stringent U.S. regulatory environment.
To: NFA Member FDMs
Re: Communication with the Public Relating to NFA Compliance Rule 2-43
NFA has become aware of false or misleading blog entries and e-mails to customers stating or implying that NFA has banned stop orders and limit orders. As you know, Compliance Rule 2-43(b) does not prohibit either type of order but simply requires that executed stops and offsetting limit orders be applied to the oldest open position or, at the customer's direction, to the oldest open same-size position.
Please ensure that neither your employees nor any firms or individuals that introduce forex business to or manage forex accounts carried by your firm are spreading misleading information about the effect of Compliance Rule 2-43. As you are aware, under NFA Compliance Rule 2-36(d), an FDM is subject to discipline for the activities of persons who solicit, introduce, or manage customer accounts. Therefore, NFA will not hesitate to file an enforcement action against any FDM with an introducer or account manager that initiates, spreads, or condones statements that convey false information.