New NFA Rules: How They Affect Your Trading

NEWSFLASH!

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 go 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!)”

2 Forex Brokers… 2 Reliable Trading Solutions

The clock is ticking and, to be honest, if I were you I would NOT want to have my FX trading account with an NFA regulated Forex broker come Sunday the 2nd of August 2009.

If you have not opened a Forex trading account yet and wish to do so now OR, if you have an account with an NFA regulated broker, then it is time to act…

There are over 80 FX brokers in the market… most are CRAP. Most will scam you out of your hard earned cash.

A few will be good… even fewer will be great, reliable and consistent.

After trading with many brokers to date (yes, I like conducting proper research before committting large amounts of money) I have come to appreciate 2 brokers:

Broker A: FXCM UK

- Account opening minimum: $500 (Note: FXCM normally requires USD $2,000 to open a live account but I have arranged a special deal were you can open an account with just USD $500!)

You can sign-up for a FXCM UK live or demo account here:

www.backbayfx.com/fxcmukaf1.php

Broker B: FOREX META

- Account opening minimum: $100

You can sign-up for a FOREX META live or demo account here:

www.forexmeta.com/bonus/

Both of these brokers provide a great alternative to you being controlled by the draconian NFA overlords… alternatives that have been tested and I consider to be both reliable and solid.