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The new NFA rules are will be in effect in about two weeks. The anti-hedging rules implies new limits on trading software. It might cause many US traders to shift to foreign brokers or to search for a broker that doesn’t make things hard. It might trigger traders that aren’t fully satisfied to switch brokers.

The National Futures Association made new anti-hedging rules, or at least that’s what they thought. Instead of making simple regulations, they introduced the confusing “First In First Out” rule, where the first position that’s opened must be closed before newer positions. Here’s a clarification by James Chen.

While the NFA regulators might think they made a smart move, many forex traders are aggravated by this rule (like here), and many brokers are struggling to implement these rules in their software systems.

Some software providers might not make it on time. For instance, people who use EAs (“Expert Advisors”) on Meta Trader 4 might see them break when the new regulation kicks in. But also traders that make only simple trades will find new limitations in their software which will be confusing.

Possible Scenarios

  • Some traders will be frustrated with the software change without being fully aware of the new regulations – they might think that another forex broker will supply a better service. The new NFA regulations might be the trigger to switch brokers.
  • Other traders might go for a foreign broker – these strict NFA rules don’t apply abroad. I’m not certain about the legality of this move, but I’ve seen this option on some brokers’ sites. They offer the trader to smoothly switch to a foreign subsidiary.

In the NFA’s struggle to ban hedging, they cause a lot of confusion and turmoil among American forex traders.

In the long run, a dynamic market for forex brokers will increase the competition. Forex brokers might work harder to offer better spreads and better service. Let the games begin.