Will NFA ruling affect Australian brokers?

[Stormin_Norman]

The National Futures Association (NFA) has a new ruling which goes into effect on May 15, 2009. It addresses the practice of “hedging” in forex trading, which is the act of holding both long and short positions in the same currency pair at the same time. Here is what the NFA had decided:

Offsetting Transactions

New Compliance Rule 2-43(b) requires an FDM to offset positions in a customer account on a first-in, first-out basis, thereby prohibiting a trading practice commonly referred to as “hedging.” A customer may, however, direct the FDM to offset same-size transactions even if there are older transactions of a different size. Rule 2-43(b) is effective for any positions established after May 15, 2009. Offsetting positions that were established prior to the effective date do not have to be liquidated, but once either position is closed out after May 15, it may not be reestablished as a hedge.

From the NFA’s April 13 press release.From the NFA’s April 13 press release.

Basically, what this means if you attempt to go long and short the same pair at the same time you will be end up with no position - your broker will offset them against each other and you’ll have no trade left open. For those who trade with brokers like Oanda, this is no change at all as that’s always been the case. Traders with other brokers who have allowed “hedging” will see that change shortly.

If you’re not aware, NFA is the industry organization to which forex brokers in the U.S. belong now that the CFTC has been given regulatory authority over forex trading (FDM stands for Forex Dealer Merchant). It does things like setting the minimum capital requirements for the brokers. The bottom line is that between the CFTC and NFA forex brokers are no longer unregulated in the U.S.

given our brokers are not NFA regulated this shouldnt effect them should it?

 

[Cartman]

given our brokers are not NFA regulated this shouldnt effect them should it?

Dunno Norm ? ---- I'll be pretty crapped off if they "legislate" this in Oz --- my system is dependent on being able to play both sides of the spread simultaneously --- actually im pretty crapped off about it anyway !!

Not sure what prompted this action by NFA ---- It could change the whole pattern of trading if the big boyz have to close out b4 reversing positions

Also might make my last 6 months a total waste of time ---- and i dont have six months to waste !! ----- time will tell.

 

[Stormin_Norman]

the other thing i find interesting is what do they mean by hedging?

having simultaneous long and short positions on a currency doesnt not automatically make it hedging.

a hedge is a position established in one market in an attempt to offset exposure to the price risk

hedging is covering risk. its a purpose, not an action.

 

[Stormin_Norman]

australian brokers talking to asic atm about it.

couldnt get any more info.

i dont understand the logic.

 

[Cartman]

the other thing i find interesting is what do they mean by hedging?

having simultaneous long and short positions on a currency doesnt not automatically make it hedging.



hedging is covering risk. its a purpose, not an action.

i guess that would come down to a war on words --- for the point of the exercise they are calling hedging the same as holding "opposing positions" so its cut and dry with them by the looks ---

as for the logic --- (imo) up till now, it has let the big volume players 'manipulate the market by "holding" then pushing the market at the low liquid points creating short term spikes just b4 a reversal --- then they simply dump the fake end of the transaction and collect the cash on the runner .. ive been playing around with a system based on this for a fair while with good results ----
the legislation could affect the way the big fellas play that game now you'd think ---- then again, multiple opposing accounts will serve the same purpose; "deep pockets" would be required !

 

[beerwm]

hey cartman/norm

why would you need/want to hold both positions anyway.

are u meaning, for example.

Short EUR/USD on a 1min chart.
Long EUR/USD on a 4h chart.

thanks

 

[Cartman]

hey cartman/norm

why would you need/want to hold both positions anyway.

are u meaning, for example.

Short EUR/USD on a 1min chart.
Long EUR/USD on a 4h chart.

thanks

G'day Beer ---- cant speak for Norm or others, but because im trying to pick short term tops/bottoms/reversals, i need to give the initial position of a trade extra wiggle room, cause nobody can pick em exactly -----

to get away with this i have to scale in/out ---- that way if you get it wrong, you can take an opposite position/each way bet till the trend becomes clearer WITHOUT being stopped out (not a great fan of stop losses !!)

ie lower initial position size till the trend is proven then pyramid if suitable ---- or hedge if it becomes uncertain ---- or total reverse if you ballz it up totally !! ---- that never happens of course ---- never !! lol ---

not everybodies cup of tea, but suits me

 

[It's Snake Pliskin]

If one is a good trader does it matter?

 

[Stormin_Norman]

the bunjip runs long and short positions as part of its trading patterns.

if holding a long and a short position is the same as being flat, then the same answer goes back to the regulators - why's it being banned?

but back to the chase. wonder what it holds for our australian brokers?

 

[electronicmaster]

I hope Australia won't do it. I'm seeing reports that some brokers are no longer with the NFA due to that new rule. Others offer trading in (and are in the process of transfering accounts too) the UK.


Just a bit of topic.

I just got t an email from FXDD about it too.

To our valued clients.

FXDD encourages you to continue to trade as you always have. We have always had solutions to the new NFA hedging rule that will not cause you to change your trading strategies. We will keep you advised.

The FXDD team.

75 Park Place, 4th Floor
New York, NY 10007
Tel: 1.212.791.3933
Fax: 212.937.3845
sales@fxdd.com
www.fxdd.com



I hope they are not just doing that to prevent people from leaving them.