GFT: Get the Facts

Due to the new rule enacted by the National Futures Association (NFA), some dealers will no longer be able to offer stop-loss and limit orders until they comply with the new FIFO matching rules.

Here are the facts:

Fact #1: The NFA recently imposed a rule (2-43 (b)) that is changing the way some dealers offer stop-loss and limit orders. GFT is already fully compliant with this rule and will not be affected — you will still be able to place stop and limit orders with us. Find out more >

Fact #2: Some dealers are asking their customers to transfer their account overseas as to avoid the new rule. GFT customers can keep their account stateside AND have full access to stop and limit orders through all DealBook® platforms.
Find out more >

Fact #3: The new rule also eliminates "hedging." GFT has never allowed or encouraged hedging as a trading method. Therefore we are fully compliant with the NFA rule. Find out more >

Fact #4: Some dealers have recently experienced a decline in net capital. GFT has more than $80 million in adjusted net capital*, well above the NFA's minimum net capital requirement. Find out more >

NFA Rule 2-43 (b) requires a "first-in, first-out" (FIFO) method of trading, which simply means that orders must be closed in the order in which they were opened. In many dealers' systems, stop and limit orders would violate this rule. The new rule also eliminates "hedging," which is the practice of taking contrary positions in a market in the hope that one of the positions will prove profitable.

GFT already complies with this rule because we use a net-based system rather than a position-based system.

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 GFT'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 price difference between the two is averaged. So it’s not possible to hold multiple positions in the same pair and therefore it is not possible to violate the FIFO rule.

For example:

Let's say you decide to buy one standard lot of EUR/USD at a price of 1.4100 at 9 a.m. ET. Then at 10 a.m. ET, you decide to buy a second lot at 1.4150. In your position window, you would see that you have an exposure of 200,000 EUR/USD at a price of 1.4125 (the average price at which this position was entered).

You can then protect your position with a stop order and a limit order.

So if you decide that you would like to take partial profit at 1.4500, you can set a limit order for one lot at that price. If you wanted to set your risk management level at 1.3900, you can set a stop order for one lot at that level.

The average price of the remaining position would still be 1.4125, and at that point, you could protect the remaining lot with a second set of stop and limit orders.

If you wished to close out your entire position, you would set your limit and stop orders for two lots each. Alternatively, you could set your limit to just one lot, but set your stop to get you out of your entire trade at your pre-determined risk management level.

You could also simply protect the position with an OCO (order cancels order). An OCO allows you to set both a stop and limit. However, when either of those orders is triggered, the other is automatically cancelled.

Want to know more? Click here to open a live text chat, or call us at 800.465.4373.

Fact #2: Some of these dealers are asking their customers to transfer their account overseas as to avoid losing the ability to use stop-loss and limit orders. GFT customers can keep their account stateside AND have full access to stop and limit orders through all of our DealBook® platforms.

We are aware that some forex dealers are attempting to circumvent the new rule by asking customers to move their accounts to divisions in the UK where the NFA has no jurisdiction. However, we believe you should be wary of this practice because the NFA rule is designed to offer better protection for traders.

GFT will never ask you to move your account to avoid regulation. We are proud to be fully compliant with all NFA regulations and we are committed to integrity in everything we do.

Have more questions? Click here to open a live text chat, or call us at 800.465.4373.

Fact #3: The new rule also eliminates "hedging." GFT has never allowed or encouraged hedging as a trading method. Therefore we are fully compliant with the NFA rule.

"Forex hedging" is the practice of taking contrary positions in a market in the hope that one of the positions will prove profitable. Some forex dealers have allowed hedging as a way to charge twice for the spread on what is, essentially, a non-position. To 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.

GFT's CEO Gary Tilkin, talked with FX Street about the new NFA hedging rule in a Q&A session on May 27, 2009. You can read his comments here.

Fact #4: Some of dealers have recently experienced a decline in net capital. GFT has more than $80 million in adjusted net capital*, well above the NFA's minimum net capital requirement.

We want to reassure you that we strictly adhere to the requirements of our regulatory bodies and are more than financially stable. With $80 million in adjusted net capital*, we are significantly higher than the NFA's minimum net capital requirement — making us one of the largest forex dealers in the U.S.

Adjusted Net Capital Source: www.cftc.gov