Forex Information: New NFA Rule 2-43(b)
The National Futures Association new rule 2-43(b) of “First In First Out” will take effect after July 31st, 2009. If you are a forex trader and have long term position in your account. You got to pay attention.
What is this “FIFO” rule all about
With this FIFO rule, it simply means that you have to close the first entry you have made before you can close the second entry.
Imagine you have multiple position on EUR/USD on a certain day
- Position 1: You sell the EUR/USD at 1.4100 at 8am
- Position 2: You sell the EUR/USD at 1.4150 at 9am
- Position 3: You sell the EUR/USD at 1.4200 at 10am
- Position 4: You sell the EUR/USD at 1.4250 at 1020am
When the price move to 1.4175 at 1030am and you decided to sell take some profit
- Position 1: Loss of 75 pips
- Position 2: Loss of 25 pips
- Position 3: Gain of 25 pips
- Position 4: Gain of 75 pips
After 31 July 2009, you will not be able to exit position 3 and 4 to take profit due to the new FIFO ruling. Since position 1 is added first which means that you have to realise your loss of 75 pips before you can exit position 2, 3 and 4. Therefore you have to take note of this and you can ask your forex broker for more information regarding this change.
For my forex broker, they have informed me that all forex traders using their platform will not be able to perform stop loss and limit order as it will violate the rule 2-43(b) but they have came out with an alternative method of using OCO to do the same task of stop loss and limit order.
To find out more about this issue, you can email your forex broker as they must have know about it.
All the best!
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