What does the new NFA rule against hedging (the FIFO rule) mean for FAP Turbo?

The new “no hedging” rule the NFA is forcing on NFA brokers has caused a lot of confusion for people trading EAs with MetaTrader 4 so lets clear things up with regard to FAP Turbo.

The NFA No-Hedging Rule (FIFO)

So what is this “no hedging” rule NFA has decided to force on NFA member brokers? You can read the official fine print here, but the gist of it is that they will no longer be allowing hedging by any brokers who are members of the NFA after July 31, 2009.

Essentially this means I can’t have two open orders  at the same time for the same pair in opposite directions. I can’t have an open buy order for EURGBP and an open sell order for EURGBP at the same time because one will always offset the other because of the new FIFO rule.

For some traders this might not seem like a big deal, but the implications of this rule actually run pretty deep and can cause a lot of problems with different trading platforms and trading systems. I’m not going to get into the details of these issues in this post, but rather just explain what this means for FAP Turbo traders in terms of FAP Turbo compliance. I’ll cover broader issues for people trading other MetaTrader 4 EAs in separate followup posts.

FAP Turbo Scalper Mode

The FAP Turbo scalper mode, which is traded by 90% or more of the FAP turbo traders,  is fully compliant with the NFA’s no-hedging rule because the scalper strategy does not use hedging. It never places trades in opposite directions on the same currency pair at the same time.

FAP Turbo Long Term Strategy

The FAP Turbo Long Term Strategy is fully compliant provided you set the MaxOrders=1. Setting MaxOrders=1 essentially turns off hedging for the long term strategy.

NFA Brokers Only

This whole issue only applies to US based brokers who are members of the NFA. A consequence of this ridiculous rule is that thousands of traders have been moving their account to brokers overseas who are not members of the NFA so they can continue to hedge and not be hamstrung by such a silly rule.

If your broker is not a member of the NFA then count yourself lucky because you can now safely ignore all the B.S. surrounding this issue which is only going to increase as we approach July 31, 2009, the deadline for the rule to take effect.

Not All US Brokers Are NFA

Many people have the false impression that all US brokers must be NFA members. This is simply not true as membership in the NFA is entirely optional for US brokers. There is no law requiring membership. The NFA is not like the SEC for stocks, but rather a “self regulating body” with its own self serving agenda.

Of course members of the NFA often try to give the impression that all US brokers are NFA members and therefore give the impression that it’s a requirement, but it’s not the case.

Unfortunately the effect of this is that the US retail Forex industry is unnecessarily losing thousands of clients to overseas brokers as clients look for ways to get out from under the NFA rules.

FAP Turbo Expert Guide Broker of Choice

Lastly, I’m quite excited to announce that The FAP Turbo Expert Guide has formed a special relationship with Gallant FX, a premium US based, non-NFA broker.

Through our sizable FAP Turbo Expert Guide membership we’ve been able to negotiate for our members a customized price feed ideally suited for FAP Turbo traders.

GallantFX offers free VPS hosting, direct access to the interbank market using Straight Through Processing and, with our special feed, extremely competitive spreads to our members.

Further details of this new relationship and the customized price feed will be announced shortly.