The NFA set forth new regulations for US forex brokers. The new rule is in two parts, with one being the most talked about.
The first part of rule 2–43 is specifics and limits on how forex brokers can adjust customer orders. The rule basically eliminates arbitrary adjustments made by forex brokers.
The second part of the rule is in regards to offsetting transactions, better known as forex hedging. The rule basically eliminates the ability of forex brokers to offer hedging to their customers.
It also requires forex brokers to use a rule called FIFO, or first in first out. That means that if you place two buy orders on EUR/USD with the first lot being placed at 1.30 and the next one being placed at 1.3050 and you place a sell order at any price.
The broker is required to close your first order at 1.30. The basic reason that the NFA wants to regulate against hedging is because they are asserting that inexperienced traders are disserviced by the offering of full hedging because they don’t understand it. Often new traders end up incurring additional expense in the form of spread and more often than not, they are still losing money.
You can read the full text of the rule at the NFA web site. The rule goes into effect May 15, 2009.
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