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Proposed NFA Capital Requirement

  • #1,181
  • May 1, 2009 4:23am May 1, 2009 4:23am
Looks to me like the NFA is trying to kill off forex in the USA for some reason. Well, congratulations to the non USA and offshore brokers. You guys are going to benefit greatly.
  • #1,182
  • May 1, 2009 5:27am May 1, 2009 5:27am
Quoting oakmonster
Looks to me like the NFA is trying to kill off forex in the USA for some reason. Well, congratulations to the non USA and offshore brokers. You guys are going to benefit greatly.
I agree with you oakmonster. I am an american that works for a bank in Germany that offers retail forex and even though this news is good for me. I talk to many people outside of the US and many do not want to deposit money in the US anymore. They are preferring Europe. Eventhough I think regulation is good, I think the NFA is taking it too far and not considering the customer who actually are the ones responsible for keeping the NFA alive. If there is no one trading in the US anymore, then there won't be any NFA. The NFA should consider think about this before they make ridiculous changes in my opinion and force traders to look outside of the US to trade.
  • #1,183
  • May 1, 2009 10:08am May 1, 2009 10:08am
Quoting rnettles
I agree with you oakmonster. I am an american that works for a bank in Germany that offers retail forex and even though this news is good for me. I talk to many people outside of the US and many do not want to deposit money in the US anymore. They are preferring Europe. Eventhough I think regulation is good, I think the NFA is taking it too far and not considering the customer who actually are the ones responsible for keeping the NFA alive. If there is no one trading in the US anymore, then there won't be any NFA. The NFA should consider think about...
The prime beneficiary of these new rules will be European based brokers. No question. It doesn't appear the NFA considered this at all.
  • #1,184
  • May 1, 2009 10:41am May 1, 2009 10:41am
The brokers made that exact complaint, about losing business to Europe, and the NFA recognized this. They obviously think that these new regulations are worth any potential lost business, and I'm inclined to agree with them. Many brokers (most good brokers, imo) aren't affected by these hedging and FIFO rules since they already offset positions by FIFO anyways. I think the higher net worth traders aren't with brokers like FXCM et al. so I'm not sure US brokers will be losing that much anyways.
  • #1,185
  • May 1, 2009 11:49am May 1, 2009 11:49am
The NO Hedge will ruin a lot of MT4 EA plain and Simple.
This FIFO crap will ruin MT4 EA plain and simple as a matter of fact, it will ruin the whole MT4 platform itself as this FIFO will ruin the StopLoss Takeprofit system.
  • #1,186
  • Edited May 2, 2009 12:26am May 1, 2009 1:53pm | Edited May 2, 2009 12:26am
Quote
I agree with you oakmonster. I am an american that works for a bank in Germany that offers retail forex and even though this news is good for me. I talk to many people outside of the US and many do not want to deposit money in the US anymore. They are preferring Europe. Eventhough I think regulation is good, I think the NFA is taking it too far and not considering the customer who actually are the ones responsible for keeping the NFA alive. If there is no one trading in the US anymore, then there won't be any NFA. The NFA should consider think about...

The Bottom line is that; if this is the current trend in regulations in America most creative people with common sense are looking for the door (exit strategy): the reason is simple the regulations lack common sense.

It is not just traders packing their bags, it is business, and soon most likely scientist, doctors, lawyers, anyone with talent will try to leave unless maybe they pick up some high paying job for the government.

The reason I believe this is I saw this occur at the State level in Massachusetts during the late 80's, Now it looks like it is going to happen on a National level.

Will America’s be known as a country full of people who need assisted living from their Government?
  • #1,187
  • May 1, 2009 7:13pm May 1, 2009 7:13pm
If i understand correct, this FIFO thing is just for brokers take more spreads right?? at least from everyone who uses a grid/martingale strategy ... it will kill us just in the spreads!!
  • #1,188
  • May 2, 2009 4:55am May 2, 2009 4:55am
Quoting tiagor33
If i understand correct, this FIFO thing is just for brokers take more spreads right?? at least from everyone who uses a grid/martingale strategy ... it will kill us just in the spreads!!

There are 3 types of brokers and taking more spreads varies depending on each type of broker below.

1) A broker that takes full risk exposure. This means that if the trader buys/sells the broker takes the opposite side of the trade and hopes that the trader will be on the wrong side. Broker's obviously don't make spreads in this case, they make money on your losses. The brokers that typically run these business models are located in unregulated areas such as these offshore taxen haven areas. They will prefer non hedging and offering 400:1 leverage to customers because it will cause the client to lose faster.

2) A broker that takes partial risk exposure. This is the business model for most brokers. They operate a B book and A book model. B book are the clients that never or rarely trade profitable so the brokers trade 100% against or might hedge them once the exposure level get's too high and they will hedge their exposure at that point. A book are clients that are profitable traders or trade large positions and cause risk to the brokers. So, they will hedge each customer trade into the market. So making spreads on B book customers will not matter, like broker 1. But on A book clients, making the spreads is important because the more people trade, the more money they will make in spreads. So, they like hedging because it means more volume.

3) A broker that takes no risk exposure. This is the business model of brokers that offer ECN platforms. So, they will make on spreads. Hedging is liked by these brokers and it's these type of brokers I feel will be hurt the most by this new rule. As a trader, this is in my opinion the best for the trader because the broker is not against you. With this change in the hedging rule may cause these brokers to change their business model to be more like broker 2.

Bottomline, it's not going to hurt you in spreads when there is no hedging allowed. It's going to hurt you because you will be forced to take a loss instead of hedging your position to control this. The answer to this hedging rule is to open two brokerage accounts. You can buy with one broker and sell with another broker and this will allow you to hedge. But as we all know this is very inconvient. The other answer is to go to Europe where hedging is allowed. Ideally, you want a broker that is like the business model in 3 which is in Europe and allows hedging now.

I think if the people would send alot of complaint letters to the NFA and state that you will lose more money by not allowing to hedge. Perhaps due to the economic crisis, they may have a change of feeling... it's worth a try.
  • #1,189
  • May 3, 2009 2:27am May 3, 2009 2:27am
Quoting forexsavior
Smittens your logic is correct. However, a lot of traders use automated software that only recognizes individual orders (individual tickets). In short, the trading software for both dealers and system traders often revolves around the ticket system. Thus, banning the use of stops on individual orders in essence bans stops altogether.
What are you talking about, of course it doesn't ban stops!

Systems and software could still revolve around individual tickets if they really needed to, buys and sells could still be executed at specified prices set on individual tickets, the only difference is they will adjust a consolidated position instead of closing an individual trade. The end result (P/L) will be exactly the same, it's only what happens to realized and unrealized P/L in between which will be any different. FIFO is not going to change NAV (net asset value) or bottom line P/L.

I think it's good to see NFA finally getting involved in cleaning up forex with the introduction of new rules, for example the new rule on price adjustments is definitely a positive step in the trader's favor.
  • #1,190
  • May 3, 2009 6:17am May 3, 2009 6:17am
Quoting pipmutt
(...) .. the new rule on price adjustments is definitely a positive step in the trader's favor.
I would like to understand how allowing brokers to charge clients for market makers not honouring prices is a positive step in the trader's favor. Please forgive my ignorance, but wouldn't the decent rule be to block brokers and market makers from doing this? It should be put as part of their share of risk in the business, shouldn't it? For me this new regulatory wile is the most ridiculous piece of crap I have ever seen since I started trading, back in 1997...
  • #1,191
  • Edited 8:07am May 3, 2009 7:56am | Edited 8:07am
Quoting Jairo
I would like to understand how allowing brokers to charge clients for market makers not honouring prices is a positive step in the trader's favor. Please forgive my ignorance, but wouldn't the decent rule be to block brokers and market makers from doing this? It should be put as part of their share of risk in the business, shouldn't it? For me this new regulatory wile is the most ridiculous piece of crap I have ever seen since I started trading, back in 1997...

In an ideal world you would be right, prices quoted and executed on should be honoured by all parties, however it's not a perfect world and bad ticks or erroneous data can't always be filtered out.

Up until now FDM's have had a free rein to adjust or cancel executed trades to suit themselves (if you've been trading since 1997 you'll clearly remember the 200 pip gaps on NFP in August 2004 when bucketshops like Refco reversed profitable trades over 3 hours later, see statement below). There was no time limit and they didn't even need to give a reason let alone any documentary evidence, they could just cancel the trade, pffft gone like it never existed. They also had the option to cancel just one leg of a trade meaning you could be left not only without the profit you thought you had banked but also in a trade which you thought was closed and which may now be heavily in negative territory if the market's moved against you quickly.

Under the new rules FDM's won't be able to do that any more unless they operate an STP model (which bucketshops like Oanda, GFT, FXCM etc don't), and even then they have to notify the trader within 15 minutes and cancel/adjust all orders executed during the same period, and provide documentation from their liquidity provider to both the client and the NFA! Busting trades willy nilly because they feel like it or because they filled everything and bucketed it and screwed up risk management of their book will be a thing of the past!

If you seriously believe the new rules are a "ridiculous piece of crap" then we've obviously got a different idea of transparency and fairness!

These new rules are quite obviously in the trader's best interests, I just hope it's the beginning of an NFA campaign to clean up what up until now has been the wild west of currency trading!




Nearly 95k of profit busted, which from June 12, 2009 will no longer be allowed to happen thanks to NFA....

http://i40.tinypic.com/2ih40ex.jpg
  • #1,192
  • May 3, 2009 10:01am May 3, 2009 10:01am
  •  onu
  • | Joined Feb 2006 | Status: superior senior member | 746 Posts
Quoting tiagor33
If i understand correct, this FIFO thing is just for brokers take more spreads right?? at least from everyone who uses a grid/martingale strategy ... it will kill us just in the spreads!!

u got it, this is exactly there intention. Dont forget, NFA is a broker organisation!
  • #1,193
  • May 3, 2009 12:18pm May 3, 2009 12:18pm
Thank you pipmutt for the informational post about Refco's tricks. I started trading forex in 2006 (stocks in 1997). You are right. There are clear improvements in transparency and fairness. We are not in an ideal world. But I still think the hedge ban is crap. They shouldn't interfere with the way people trade.
  • #1,194
  • May 3, 2009 1:31pm May 3, 2009 1:31pm
Quoting Jairo
But I still think the hedge ban is crap. They shouldn't interfere with the way people trade.
I agree with you up to a point but I think NFA are walking a fine line, it's difficult to get a good balance between protecting clients and nursemaiding them.

Having opposite positions on the same pair as they point out has no financial benefit, but it does have costs and in some circumstances risk. The question is who actually takes a long and short position, I think it's more likely to be the inexperienced novice rather than an astute trader and I suspect it's the inexperienced clients which NFA are trying to protect with that rule. For longer term strategic positions it will still be possible to have opposite trades in separate accounts or sub accounts.

I can think of far more important issues they should have addressed first before FIFO such as the outrageous leverage offered by some of these firms, perhaps that's coming next!
  • #1,195
  • May 3, 2009 3:11pm May 3, 2009 3:11pm
Quoting pipmutt
I can think of far more important issues they should have addressed first before FIFO such as the outrageous leverage offered by some of these firms, perhaps that's coming next!
I never used more than 100:1. But again I think the decision should be left to the trader. Somewhere in the world, probably, there will always be some broker offering higher leverage. Though I have never used, I don't discard the possibility of using it in the future, provided I can handle 100:1 efficiently and then try to take the step up.
  • #1,196
  • May 3, 2009 7:19pm May 3, 2009 7:19pm
Quoting onu
u got it, this is exactly there intention. Dont forget, NFA is a broker organisation!
It is a broker organization, but keep in mind that its also for futures brokerages and banks, many of which are a lot larger than the forex brokers that are also members. Futures firms and banks are not big fans of the forex brokerages, so rest assured, they're going to make it as difficult as possible for retail brokerages in forex to operate.

It's not illegal or even necessarily illicit, but brokers in the NFA are not one large monolithic group.
  • #1,197
  • May 3, 2009 9:24pm May 3, 2009 9:24pm
This thing about the NFA banning hedging is just a storm in a teacup in my view. I agree it looks trivial but few people use hedging as a trading strategy. I personally never hedge.
FIFO - You will still be able to average out if you wish but will now have to close all your pooled positions at once instead of closing the profitable ones and letting the losses run on the non profitable ones. Again, not a big deal and if anything would force some traders to cut their losses early.
  • #1,198
  • May 4, 2009 4:54pm May 4, 2009 4:54pm
Looks like I Trade FX is throwing in the towel. With the NFA fining them $250,000 over the Olint affair and the $20 million capital requirement set to kick in I Trade FX is officially calling it quits: http://www.forexfactory.com/news.php?do=news&id=166975

Quote
New York―May 4, 2009―Forex Capital Markets LLC (www.fxcm.com) today announced it has reached an agreement to acquire the U.S. and international retail forex clients of i-Trade FX. Subject to regulatory approval, accounts are expected to be transferred from i-Trade FX to FXCM on May 8, 2009. Like several other forex firms, i-Trade FX has decided to cease offering service to US retail clients. Other firms that have decided to exit the U.S. retail business include ODL Securities, Hotspot FX,...


The U.S. industry consolidation should continue in the months to come as cap increases and a battery of new regulations continue to squeeze the market.

Next up, CFTC Net Capital report for March.
  • #1,199
  • May 5, 2009 3:55am May 5, 2009 3:55am
Quoting forexsavior
Looks like I Trade FX is throwing in the towel. With the NFA fining them $250,000 over the Olint affair and the $20 million capital requirement set to kick in I Trade FX is officially calling it quits: http://www.forexfactory.com/news.php?do=news&id=166975
Wow, FXCM is swallowing up all these firms in the US. It sure pays to have started in this business as a broker in the beginning, FXCM is really reaping the benefits now. I think the 250K fine is ridiculous they charged I trade. I'm curious if the NFA purposely charged this fee to force I trade to surrender to FXCM. Who do you think is next forexsavior to go on the chopping block in the US?
  • #1,200
  • May 5, 2009 5:42am May 5, 2009 5:42am
FXCM gobbles up yet another firm. hmmm.... wonder what they are up to?
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