New rules are about to go into effect in the Forex market; how will these changes affect you?
This is from the NFA, dated April 13, 2009:
"New Compliance Rule 2-43(b) requires an FDM to offset positions in a customer account on a first-in, first-out basis, thereby prohibiting a trading practice commonly referred to as "hedging." A customer may, however, direct the FDM to offset same-size transactions even if there are older transactions of a different size. Rule 2-43(b) is effective for any positions established after May 15, 2009. Offsetting positions that were established prior to the effective date do not have to be liquidated, but once either position is closed out after May 15, it may not be reestablished as a hedge."
http://www.nfa.futures.org/news/news...ArticleID=2273What does this mean to you? The NFA is banning the practice of simultaneously establishing a long and short position on a single currency pair, popularly known as "hedging." Forex brokers (referred to here as FDM's, or Forex Dealer Merchants) have allowed this practice for years, which can be useful under the proper circumstances. For instance, suppose that a trader is bullish EUR/USD in the long term, but is bearish on the same currency pair in the short term. Under the old rules, a trader could maintain a long position and a short position in EUR/USD simultaneously. The NFA is concerned that brokers have found a way to allow traders to establish a "flat" position while charging two commissions. This will no longer be allowed as of May 15.
