NFA ~ New Ruling Might be Worrying
Filed Under (Journal) by Casey on 08-07-2009
Tags: Cyborg EA, DragonPips, EuroBlaster, FXDD, IBFX, NFA, NN Master, S26
Since the first release of new regulations by the NFA on US brokers, I was a bit tad worried about my account with both IBFX and FXDD.
NFA is or had released these three new regulations…
* No Hedging
* First In First Out (FIFO)
* Not Allowing Stop Loss or Limit Order
Of all the three rulings release, it is the third rule that really got me really worried. But before I jump the guns… I had to find out what is it all about and what are the implications it will have on me. So I scour the internet and found this site is so far the best informative information about these new rulings.
FXStreet ~ Facing the New NFA Regulation
The articles and comments posted are and I believe to be big whale professional traders. Trading million dollar accounts. I am just an amateur trader.. small time punter, automatically trading the market, toying around with robots, which trade on mini and micro account with small amount of capital..
I am not in the same league as most big time traders, so the article and comments discussed from FXStreet are very complex but it does give me some understanding about this new regulations.
But as a peanut man trader… it does have some implication to my strategy to use EA to trade for me.
What is this new hedging rule to me? Well for me… this means I can only take one or multiple positions on a currency pair going one way… and I can’t take any another position in the other direction without closing my initial position on the initial direction.
In summary… it’s just only one direction at a time. If I want to make a U-turn… I need to slam the brake and turn.
This is pretty throw a wrench to my plans… why? Which means my idea like Operation Blitzkrieg would not work. The initial idea was to attack one currency pair with a few EA of different strategy. (Hmmm… I forgotten to write an update on this… anyway… )
The reason for this strategy is that… most EA are scalping with small profit but big stop losses. IF and that is a big if, I am able to find a set of EA that works in a way that when these scalping EA are still floating at a lost, I can have other EA with a different strategy to scalp the other way round. So I take small profits in the other direction to offset the potential big stop floating losses… While this is not an effective trading in terms of profits, it is still a strategy for a robot trader like me. Especially if I am not a person who would sit in front of the chart 24/7.
Now obviously the FIFO rule works in tandem with this new hedging rule. For me I feel that this has very minimal impact. From what I heard… this rule only apply the the position of the same size lot. The example from the articles from FXStreet would rarely apply to me… Most robots if I am not mistaken do not take same lot size cascading position.
I mean hey… EuroBlaster and DragonPips do or can be set to take multiple positions (at times I do not really understand the logic behind this)… but their multiple positions are taken so close together, plus the stop loss (SL) and take profits (TP) or limit order (LO) level are to close to have any effect as per the example in the article. This rule might effect a trend trader or a long term trader than a small short term trader like me….
But what I am really really really really really worried about is the third ruling…. which apparently may not come into effect… don’t know… but no news about this not allowing stop loss or limit orders.
This is dumb right fu(ked up rule with a big capital F. It means they want to fu(k up automatic traders. It means that they don’t want part time traders working the market. It means they want us part time traders to sit and monitor the market as if we have nothing else better to do with our life.
Even the great guru of market traders says that going into the market without a stop loss is like going to a public place without a pants on.
What the hell is the logic behind this ruling? Unfortunately, this is the one ruling that I am unable to find more information about. Thus, I really don’t know… no stop loss or limit order is very worrying indeed.
Ok… after all that. I think I am just being a bit dramatic over all this… Ok, ok… I am being overly dramatic over all this.
It is not all that bad, this NFA regulation are just rocking my comfort zone…. You see, my two profitable EA is currently sitting on a US broker account. My Cyborg is sitting on IBFX which has been proved to be very profitable… and S26 and NNM is on my FXDD account.
Small account but the best so far in terms of net profits…
What these ruling ACTUALLY means to me is that, I need to find a new broker which is not US base to house these robots, which is a bit tedious and cumbersome for me… I need to withdraw my money and deposit my money into another broker. It takes time and I lose money with all these withdrawal and deposit fee (via wire transfer)…
Search for a new broker also is another exercise. There are so many brokers that I do not know which one to choose from… where do I begin searching.
New broker… means new environment… means I am not sure how well these two EA will perform as before.
Again… I am only worried about the the third regulations. As for the other two rule, I do not think that it will have much effect on me unless I am planning to implement my idea like Operation Blitzkrieg on these two brokers. (which I probably won’t)
Firstly, Cyborg only trades in one direction per currency. It does take different position size downwards and the FIFO rule would not apply here when closing out because this rule only apply to the same position size. So effectively… I do not break the first two rules. As for my S26 and NNM… it also is not an issue… one can set s26 to hedge or not to hedge… it’s up to individual.
But without stop loss and limit order… these EAs will not work.
I have tired to get confirmation about this no SL and LO ruling from both these two brokers, and no confirmation has yet been advice. These FIFO and no SL and LO ruling will only been enforce by the end of July 2009. So I guess I still have time. However… like any forex trader, I need to be prepared and plan ahead.
So in the meantime… all I need to do is to scout around for non US broker… Good non US broker that is and start my application process. Then I just sit and wait to see how IBFX and FXDD is planning to handle this working orders… If they are going ahead with this regulations… then I am moving out….
Don’t never forget: NFA was founded by US BROKERS !!
They try to tell us the new rules, especially regards hedging, are made for the sake of traders safety and transparency LOL
In reality this is the matter of fact:
Hedging can be simulated by using two separate accounts. However, this method presents a greater risk of being margin-called, as the positions do not offset each other in the same account.
U got it? broker get twice the spread when we hedge in the future…..and chance to wipe out the accounts increase by 100%
But who cares? Who needs to trade in maroon land?
Next fu(k up rule there is just around the corner:
Leverage will be scaled down to max 1:100, most likely to 1:25
The end for most high profitable EAs !
Conclusion: NFA/broker- mafia kicks out mt4 and EA trading in USA
Solution: go to UK and AUS broker
Hi Casey,
From what I have read, your concerns have been shared by a lot of people in a similar positions since they were first announce around 3 months ago.
On our part, as EA authors/vendors, we have made sure that our own EAs comply with the anti-hedging regulations. The latest version of Winalot, for instance, now contains a switch whereby users can say whether their broker allows hedging or not. Although the performance is still good, it is not quite as profitable with the switched turned on for US users as it is for non-US users with the switch turned off.
That alone does not solve the other issues, however.
One other problem, as you correctly point out, is that it will no longer be possible to use two EAs trading the same currency symbol on the same account. To me, this is sheer stupidity as people might want to employ both a scalping strategy and a trending strategy together. Both strategies have their own merits and seek to achieve a different result. So why should this suddenly be a problem and why should they be denied the opportunity to do it? Who are the NFA seeking to protect exactly?
Also, the FIFO rule is going to be more problematic to implement and has been delayed now until the end of July. It involves MetaQuotes making a modification to at their client brokers side so that it will work. I presume the “fix” will only be implemented with those brokers who are affected.
From the feedback we have received from our userbase so far, it appears that most US brokers are unhappy about these changes. Many are advising their clients to switch their accounts to their UK branch. Others have discussed the option of moving client funds offshore so that they are unaffected by the NFA rules. From what I gather, Alpari US are a broker who do not allow their US clients to open UK accounts. Why not?
I have also heard or read that FXDD are not members of the NFA and are therefore unaffected by the changes. I am not a client of FXDD though, so am unable to confirm if this is the case or not.
The other suggestion I have heard is that brokers like IBFX allow a number of “sub” accounts to operate under the umbrella of the main acount. It may be worth exploring therefore if it is possible to hedge through different sub-accounts.
Otherwise, if the clients are unhappy, the brokers are unhappy and the EA vendors are unhappy it is difficult to know exactly who the winners are here. My suggestion, for what it’s worth, is to open up new non-US accounts.
Some of what I have said may simply re-iterate the concerns already raised by Casey, but I hope it helps.
@onur: true… but i don’t want to move… i’m as u say… lazy.. hehe.. no it’s a matter of money loss during the transfer from one account to another… but on the other hand, short term loss for long term gain no??
@Easy-EA: FXDD is in the midst of submitting their application to NFA… Is it compulsory fro all US broker to be registered with NFA?? I mean FXDD has been around for a long time now… why only now are they registering themselves with NFA?? Is there another new regulation governing NFA??
Yeah… with IBFX I have already open another sub account… which means difficult to effectively utilize my margins. I could have been pulling more profits with Cyborg if not for this $hitty regulations….
Thanks for your input guys…
@casey: whether u don’t wanna switch to broker outside of maroon-land or not, u will be forced to do it or u have to give up EA trading.
Casey, and the rest of you folks.. Don’t worry, the NFA will approve US brokers back office system, so trading will continue as usual. IBFX already announced it a couple days ago, FXDD will be next, and so on.
And regarding IBFX, I just heard they got fined by the NFA for like 250k. But at least the NFA okayed there back office system.