Announces Continued Use of Stop and Limit Orders, Full NFA Compliance
ADA, MICH, July 2, 2009 â€” While a recently
adopted National Futures Association (NFA) rule is forcing some forex dealers
to discontinue the use of stop and limit orders to protect positions, GFT, a
US-based company, announced today that their platform is fully compliant with
all NFA regulations and, as such, customers trading with GFT will not be
Rule 2-43 (b) requires a â€śfirst-in, first-outâ€ť (FIFO) method of trading, which
simply means that orders must be closed in the order in which they were opened.
In many dealersâ€™ systems, stop and limit orders would violate this rule. The
new rule also eliminates â€śhedging,â€ť which is the practice of taking contrary
positions in a market in the hope that one of the positions will prove
GFT has always had a FIFO trading system, founder and CEO Gary Tilkin said that
GFT customers will see no changes to their accounts or trading strategies when
the rule takes effect on August 1.
2-43 (b) does not change anything for our customers,â€ť he said. â€śWe offer stops
and limits today and weâ€™ll be offering them in the future. We believe they are
an important part of a sound risk management program.â€ť
for hedging, Tilkin believes that many traders donâ€™t understand that the
practice works against them far more often than it works for them.
has never allowed hedging on its system because we believe itâ€™s little more
than a way for dealers to charge twice for the spread on what is, essentially,
a non-position.â€ť he said. â€śTo have two counter positions in a
financial product is really no position at all, and there really is no
financial benefit for the customer to engage in this type of trading.â€ť
GFTâ€™s system is net-based rather than position-based, the new rule does not
apply. In a position-based system, it is possible for a trader to take multiple
positions at different levels on the same market. For example, a trader could
have three positions in the EUR/USD pair and then close out each position based
on its individual performance, which would violate the FIFO rule.
in a net-based system such as GFTâ€™s, when a trader enters a new position in a
market where he or she already holds a position, the new position is simply
added to the old position and the prices are averaged. So itâ€™s not possible to
hold multiple positions in the same pair and therefore it is not possible to
violate the FIFO rule.
has always encouraged traders to do their research and employ a sound
methodology when trading currencies. Trading psychology and time-tested
methodologies go hand-in-hand, and hedging strategies discourage these sound
practices. To read comments made by Tilkin earlier this year on the
subject of hedging and the new FIFO rule, click here.
circumvent the new rule, some dealers are asking customers to move their
accounts to divisions in the UK where the NFA has no jurisdiction. However,
Tilkin questions this practice because he believes the NFA rule is designed to
offer better protection for traders.
would we ask our customers to move their accounts outside the US when the NFA
is looking out for their best interests?,â€ť he asked. â€śUltimately, we believe
that more protection is better.â€ť
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