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Stop Loss policy under new NFA rules




The National Futures Association (NFA), our industry's self regulatory organization in the United States, has informed all Forex Dealer Members, that it has adopted new Compliance Rule 2-43(b) regarding Forex trading.

The rule requires orders be executed First In, First Out (FIFO).

Example:
if you have three different positions:
#1 BUY 10K EURUSD @ 1.3000, target (limit order 1.3500)
#2 BUY 10K EURUSD @ 1.2800, Target (limit order 1.3000)
#3 BUY 10K EURUSD @ 1.2700, Target (limit order 1.2800)
you will not be able to close #3 with the limit order once 1.2800 is reached, but instead #1 will be closed.

This FIFO rule soon found a flaw - stop loss orders available at brokers' trading platforms, which allowed placing stops on individual tickets on the same currency pair and be executed as soon as price reaches a specified level. Filling stops at requested price for multiple positions that are held in the same currency pair became impossible with FIFO rule, which says that a position which was first opened must be the first to close.

As a result, regular stops the way traders know them will no longer be allowed with NFA brokers, instead,
entry orders should be used for stop-loss and limits after July 31, 2009 as follows:

For Buy Positions: Placing an entry order to sell below the price where you got into the position protects you
from additional losses. Placing an entry order to sell above the price where you got in locks in profits.

For example, if you have a BUY EUR/USD position at 1.3900, you could place:
a stop-loss using a sell entry order at 1.3800
or
a limit using a sell entry order at 1.4000.

For Sell Positions: Placing an entry order to buy above the price where you got in protects you from additional
losses. Placing an entry order to buy below the price where you got in locks in profits.

For example, if you have a SELL EUR/USD position at 1.3900, you could place:
a stop-loss using a buy entry order at 1.4000
or
a limit using a buy entry order at 1.3800.



Broker discussion area

trader

July 10, 2009

Time to switch to ECN/STP brokers outside USA.

trader

July 11, 2009

Who the hell does the NFA think they are coming up with these outrageous rules??? As if trading forex isn't hard enough... Are they intentionally working against use trying to keep the rich rich and the poor poor? Or are they just a bunch of num skulls? I'm outraged that a small group of individuals can decide to come up with some rediculous rules and just about ruin forex trading for the average hard working person trying to improve their standard of living. I think all forex traders need to band together stand up to these bullies and say we're not gonna take it! We'll boycot every broker that complies with your unjust regulations and if you don't change your rules we'll boycot you! Like one of the founding father said. "evil can only exist if good men do nothing" And it looks like these guys will do whatever we let them get away with. Let's say enough is enough, we only want rules that protect the rights of the traders from greedy brokers.

mp

July 12, 2009

while i fully agree with your anger and references to big guy/little guy I also have been in the trading world long enough to know that the BIG pieces go to the BIG players, and the retail traders scrounge for the scraps.

the SEC went thru this in the late 1990's when they installed "decimal spreads" to stop the SOES Bandits from making a living by taking 1/16 bites out of the spread and in the interests of "smoother operation" of the equities markets, altered the Day Trader Rules to require $25K equity in a stock account before you could daytrade or even SHORT a stock, which knocked many a small player out of the box.

How ethical the SOES bandits were, and whether or not these things should have happened can be easily debated, but its result was to accomplish what you say above and im afraid the NFA is entering into the same mentality at this point ---- after all, it was NOT the small retail trader who caused the sub prime crisis, but we will be punished as if we were.

the dust has yet to settle, but months and months ago i went to European houses with my accounts and can continue trading exactly the same way as in the past--- of course, that doesnt mean that the NFA or the government wont OUTLAW a US citizen from trading in England or Russia, which then forces me to break the law by finding an address or opening a Swiss corporation (i guess my US corporation can open a Swiss branch).

The ever existent problem with trying to plug a hole in the dike (the sub prime mess and the uncontrolled petro, metals and gold futures situations recently) is that future actions have collateral results beyond peoples imaginations ---- prohibition appears to have been one. agree or disagree with the "noble experiment" it raised the level of criminal activity from small time to one of empire building, organized crime which allowed entry into legitimate industries, bought off influence all the way to the top tiers of government, altered gun laws so the "bad guys" could still get them but no one else could and has reached into every phase of our lives since, AND THE HOLE WAS NEVER PLUGGED !

Now everyone is rushing around as the witch hunt for the "bad guys" in the past few years scenario's continues, and lo and behold its the same old, same old ! Nothing is going to alter the greed and machinations of the large institutions and the banking system as their product is MONEY, and they want and NEED to make as much as possible, so while the banks will always have ways to get around (or just not care) about the rules, we the smaller fish HAVE NONE of those protections and are the first to suffer.

Unfortunately, the only way to continue trading in the future and still be an honest person is to BREAK THE LAW by (figuratively at least) MOVING operations to another more friendly country and while im not trying to be Oliver Stone here, I firmly believe this is our only alternative in the very near future, because it will take the NFA years, if ever, to alter what they have enacted now !

just my opinion of course

enjoy and trade well,
mp

trader

July 12, 2009

Thanks for the explanations! But I say we should still fight back! How about FTU(Forex Traders United) A non profit organization created by forex traders to protect the rights of forex traders. Anyone out there want to start it?

trader

November 3, 2009

Since when did spot currency become a futures contract?

trader

November 5, 2009

July 31, 2009 is the date when the currency world went upside down.



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