NFA Rule from August?

Beginner Questions
1

Hello,

I just found out about the NFA rule that went into effect last month regarding traders being no longer able to place stop loss or limit orders with US brokers?

However, I read a lot of controversial responses to this announcement from different sources, and I’m looking to “set the record straight” as to what exactly has changed.

From what I’ve gathered, it seems that this rule affects [B]some[/B] platforms but not others, which I don’t really understand why.

I’m currently demo-trading with MB Trading’s Navigator, and from what I’ve read, this new rule doesn’t apply to the Navigator? All I know is, I’ve been able to place all different kinds of orders with the demo …

Unless I’m mistake again, it seems like MT4 is one platform affected by this rule?

Can someone explain why these rules only apply to some platforms? And are OCOs and TTOs basically the same thing? Were they specifically developed as a way around the new rule? I started demo-trading shortly[B] after[/B] this rule went into effect, so I’m afraid I have no basis of comparison.

More than anything else, I’m just concerned as whether or not I’ll be able to use stop/limit entry orders with MB Trading’s Navigator on a live account.

Thanks!

2

The two major rule changes imposed by the NFA this summer were (1) hedging is banned, and (2) all forex positions must be closed on a first-in-first-out (FIFO) basis. I’m not going to try to recite the details of these new rules. You can research them
on the internet.

The FIFO rule impacted some brokers, but not others, depending on how their platforms were configured to close trades.
The FXCM platform got decimated by this rule. The MBTrading platform was not affected.

Regarding MT4, most MT4 platforms were affected by both the hedging rule, and the FIFO rule. And some brokers had to scramble to bring their MT4’s into compliance. MBTrading side-stepped this problem, out of sheer luck: before the NFA rule-change, MB was preparing to offer the MT4 platform to their customers, and they were already in the process of modifying the MT4 platform to conform to their STP order-processing protocol. Those modifications to MT4 made their MT4 platform equivalent to their Navigator platform in the way it closes positions, and therefore the MBTrading version of MT4 was NFA-compliant from the time that it was first introduced.

Regarding OCO and TTO orders: they are similar, but not identical. OCO means “one-cancels-the-other”, and it refers to a link between two pending orders such that, if one of them is triggered, the other one is canceled. OCO orders can be used as stops and limits to straddle an existing position with exit orders. But, OCO orders have other applications, as well, not involving stops and limits.

TTO means “threshold-triggered order”, and, as far as I know, only MBTrading uses this terminology. As I understand it, TTO orders are used only as stops and limits, but check with MBTrading for precise information on this.

You’re worrying about something that doesn’t affect you, anyway. It’s all in the past now, and it didn’t affect your broker.
You’re using the MB Navigator (demo), which is exactly like their live platform. So, when you switch to live trading, your platform functionality will not change — your entries and exits will be handled just the way you have been accustomed to.

Clint

3

Just to clarify, the NFA rule changes in no way prevent stop or limit orders. As Clint has noted, broker platforms have been impacted different ways and as a result some have apparently attempted to con traders into believing the NFA is restricting the use of those orders and have tried getting them to switch to non-US juristiction accounts. Depending on your broker you may not be able to place the orders quite the same way you did before (or maybe you can), but stops and limits are still doable.

4

Thanks for the responses.

Yes, I believe I was alarmed by prospect of no stops/limits due to the threads people had posted with FXCM’s initial response to the FIFO rule. They had it made it seem like the rule was [B]specifically[/B] trying to get rid of such entry orders, when in fact that was not true.

I just got confirmation from an MB Trading employee that MBT has never opened multiple positions for the same currency pair, but rather all lots you purchase are put into the same position and are based on an “average basis price.”

So at least for MB Trading, it seems it never was an issue for them.

5

I didn’t want to be bothered with all the nonsense. I had FXCM move my U.S. account to a UK one. It was painless and completed within a day. In fact, it’s nicer to have funds withdrawn by wire transfer than by paper check, as required by the U.S. office.

6

I agree with Merchantprince. I also moved my FXCM account to the U.K., quickly and painlessly.

I’m glad to be out from under the thumb of the NFA. And I’m glad to get away from the orgy of financial industry regulation currently sweeping through the U.S. government. The Obama regime’s big-brother approach to government regulation is not just because of the global financial crisis — it’s part of their long-term agenda to grow government.

The Financial Services Authority in the U.K. now regulates my account, and I’m very pleased with that. My account, and every other U.K. customer account, is segregated from the funds of my broker, and insured by the British government — sort of like FDIC insurance on bank accounts here. You can’t get that kind of protection in a U.S.-domiciled forex account.

Clint

7

I heard from a broker contact of mine that FXCM actually got slapped by the NFA for that whole misdirection.