The changes expected when the NFA Rule 2-43b will be implemented from 15 May 2009 are as follows, in order of certainty.
1. No buying and selling on the same currency pairs for market orders.
2. No buying and selling stops or limits on the same currency pairs that is in opposite directions.
3. Allowing multiple orders of the same currency pairs for the same type of orders.
4. As a result of point 3, First-In-First-Out processing of orders.
We have a frontrunner broker as of today who have started implementing the NFA 2-43b. The first three points mentioned above has been implemented but not the fourth point. So hedging refers to all opposing type of orders ie be they market or pending (stops or limits) and these are disallowed. If you choose to place orders in the same direction, you can do so with market or pending (stops and limits). And when you close these orders, it can be in any order.
One of my burning question is : what happens when the buy stops and sell stops for the same currency pair is such that if they are ever triggered, they will be stopped out first before the opposing order is triggered. And the answer now: disallowed.
Hi Ronnie,
ReplyDeleteI am interested in the last paragraph of the post that you have mentioned. So, what you are saying is that we can't even have stop orders of opposing directions being opened at the same time? I think it is unfair if NFA restricts until that extent.
I have a strategy operated through EA such that I would open two stop orders at some calculated distance away, but if one gets triggered the EA would automatically delete the other.
Strictly speaking, the above strategy is not hedging. Do you happen to know if this is allowed under the NFA non-hedging rules?
Thanks.
Max
Hi Max
ReplyDeleteYes I have a similar strategy to yours except that I did not delete the opposing PENDING order when one order is triggered. But in the first place under the new NFA rule as implemented by IBFX (we are not certain if other US-based brokers will implement in the same way), you are not even allowed to place two opposing pending orders for the same curency pair. Yes, I have to shut down this EA, changed to another one that does not so-called "hedged" and use the "hedging" or rather straddling strategy on a UK-based broker.