Hi,
After reading this thread I think it is time to actually explain what is going on, for it isn't what most people think. Compliance rule 2-43 makes no mention of stop loss or take profit orders. The rule has NOTHING to do with such things explicitly.
What IS going on however is that the NFA is mandating First In First Out (FIFO) reconciliation on all positions. This is what rule 2-43 states. There are three effects of mandating FIFO:
1) No hedging -- If you Buy 1 EURUSD and then Sell 1 EURUSD FIFO reconciliation mandates that the two transactions be netted against each other and that you end up flat. Thus you cannot specify whether the Sell 1 EURUSD is opening a hedged position or closing the already open Buy 1 EURUSD. The NFA mandates that it be a closing of the position.
2) No Position Closing (maybe) -- Here is where things get interesting. The NFA rule doesn't say you cannot close a specific position, it just says that if you do, you have to close your oldest position. It is up to the broker to determine how they want you to interact with your positions. What the NFA is requiring is that if you try to close a specific position, it has to be the oldest one.
3) No Take Profit and Stop Loss (maybe) -- Again, this is where things get interesting. The limitation of TP and SL orders is a broker decision on how to comply with the NFA 2-43 regulations. For example, IBFX has stated to me that they WILL allow TP and SL orders IF you have only ONE position of a unique size. In other words you can have some TP and SL orders on a Buy 1 EURUSD if it is the ONLY Buy 1 EURUSD position you have. You can also have a Buy 1.01 EURUSD and have TP and SL on both. This is because if you enter two positions of the same size and same direction, with differing TP and SL orders the broker has to be sure that the TP and SL orders (if hit) close the oldest position, and that isn't always true.
Again, the NFA issues is FIFO reconciliation. By mandating it they make it very hard to think about trading as individual positions. If you do, you have to enforce FIFO in some very strange ways. OR you can amalgamate the position into one position, averaging the entry, which is what happens in the Futures markets.
I hope this helps explain the issue more clearly, for it really isn't a No more Take Profit or Stop Loss orders issue.
After reading this thread I think it is time to actually explain what is going on, for it isn't what most people think. Compliance rule 2-43 makes no mention of stop loss or take profit orders. The rule has NOTHING to do with such things explicitly.
What IS going on however is that the NFA is mandating First In First Out (FIFO) reconciliation on all positions. This is what rule 2-43 states. There are three effects of mandating FIFO:
1) No hedging -- If you Buy 1 EURUSD and then Sell 1 EURUSD FIFO reconciliation mandates that the two transactions be netted against each other and that you end up flat. Thus you cannot specify whether the Sell 1 EURUSD is opening a hedged position or closing the already open Buy 1 EURUSD. The NFA mandates that it be a closing of the position.
2) No Position Closing (maybe) -- Here is where things get interesting. The NFA rule doesn't say you cannot close a specific position, it just says that if you do, you have to close your oldest position. It is up to the broker to determine how they want you to interact with your positions. What the NFA is requiring is that if you try to close a specific position, it has to be the oldest one.
3) No Take Profit and Stop Loss (maybe) -- Again, this is where things get interesting. The limitation of TP and SL orders is a broker decision on how to comply with the NFA 2-43 regulations. For example, IBFX has stated to me that they WILL allow TP and SL orders IF you have only ONE position of a unique size. In other words you can have some TP and SL orders on a Buy 1 EURUSD if it is the ONLY Buy 1 EURUSD position you have. You can also have a Buy 1.01 EURUSD and have TP and SL on both. This is because if you enter two positions of the same size and same direction, with differing TP and SL orders the broker has to be sure that the TP and SL orders (if hit) close the oldest position, and that isn't always true.
Again, the NFA issues is FIFO reconciliation. By mandating it they make it very hard to think about trading as individual positions. If you do, you have to enforce FIFO in some very strange ways. OR you can amalgamate the position into one position, averaging the entry, which is what happens in the Futures markets.
I hope this helps explain the issue more clearly, for it really isn't a No more Take Profit or Stop Loss orders issue.
