NFA New Rules – Game Over?

From Sunday the 2nd of August 2009 You Can Kiss Your FX Trading
Proflts GOODBYE!

What a way to end the career of so many FX traders that use NFA
regulated Forex brokers.

Unless you have been living on Mars, you must know about the little
“favors” the NFA has done for Forex traders!

It has already been a few weeks since the NFA forced their first new
directive on brokers and hurt so many traders… the latest batch will
become “law” after the market closes this Friday and if your trading
was not killed by the last rule they implemented, it WILL be this time!

3 new “rules” will take you from being a potentially profitable FX trader
to a CERTAIN losing FX trader:

Directive #1: No way to have long (buy) and short (sell) orders open
at the same time
Directive #2: No way to open orders with StopLoss and TakeProflt
levels set
Directive #3: No way to close the order(s) that YOU want to close

Ok… I would like to review each of these elements in detail. Please
over this carefully since it is YOUR money at stake here.

Directive #1: No way to have long (buy) and short (sell) orders open
at the same time

This is often referred to as “hedging” and, if you listen to the NFA, is
a very bad thing to do.

If, however, you step back and consider things sensibly and rationally,
you can see immediately that hedging is not a bad thing at all – it is
actually a very useful way to operate your trading account.  What this
rule actually means for you is that you are no longer able to trade your
account with multiple strategies on the same currency pair.

Perhaps you trade several EAs (Expert Advisors), perhaps several
manual strategies, perhaps a combination of manual and automated
systems.

If so, it would be very common to find some strategies / EAs trading
long positions and some trading short positions – until the “experts” at
the NFA decided that the whole idea of trading in two directions was
bad for you and banned the concept!

Directive #2: No way to open orders with StopLoss and TakeProflt
levels set

One of the most fundamental aspects of trading is money management
and the best way to achieve that is with correctly placed StopLoss
orders to accompany each trade opened.

Another important aspect of money management is being able to take
a proflt on an open trade.  Once again, the NFA disagree with long-held
principles of trading because one of their new rules (takes effect this
weekend) will not allow StopLoss and TakeProflt orders to be specified…
you must choose one or the other!

I am sure that this little revelation will send you searching for your crystal
ball so that you can accurately predict which type of order you will require
before actually placing each new trade

Directive #3: No way to close the order(s) that YOU want to close

The final gem of an idea thought up for you by your caring, sharing NFA
is something referred to FIFO (First In, First Out)…

What that means is this: assume that you were trading EURUSD and
opened a long position… the market moves up and looks like it will
continue so you open another long position.  Now price starts to
decline so you want to close the 2nd order before it turns into a loser
and let the initial order run in the hope that the upward move will
resume, after all, you can always close the initial order later if the
need arises…

Sorry – that is not allowed!  The new rule means you would be forced
to close the initial order before you could close the second order.

So, once the markets re-open on Sunday, the face of trading for vast
numbers of people will have changed very much for the worse!

If your current broker is registered (and therefore regulated) by the NFA
then there is a very, very high probability that any EAs that you might be
using will cease to function.  Depending upon the order types used,
there is still a slight possibility that an EA might continue to function if
it was the sole trading system used on a particular currency pair, but,
under the new rules there is no safe way of simultaneously running
multiple EAs on the same currency pair – even if they were all trading
in the same direction as the FIFO rule prevents an EA from monitoring
and managing its own positions.

Remember: This does not just affect traders using EAs – anyone trading
more than one manual strategy is also going to find things incredibly
difficult from next week.

To quote from the US national anthem “…the home of the brave and the
land of the free (unless you trade Forex!)”