Oanda has recently announced a change in how FIFO is implemented on their platforms. FIFO (which stands for first in first out) was implemented in the US by the National Futures Association (NFA) in August 2010. FIFO is a common feature in stocks and futures platform but is relatively new to Forex platforms. This change caused a lot of confusion amongst traders and brokers in the US. Prior to the NFA rule change, forex traders with multiple positions in the same instrument could close trades in any order they wanted and even hedge their open positions. The NFA cited the lack of economic benefits of hedging and potential for abuse by money managers as their reasons for making the change. Forex brokers are still not sure of the interpretation of the FIFO rules. We saw similar confusion amongst brokers when the NFA mandated the disclosure of the client profitability figures. Oanda’s numbers were the highest until the NFA came back with additional clarification on how these profitability numbers were to be calculated. It seems Oanda was including inactive accounts that were earning interest on deposit. This latest change on the FIFO implementation by Oanda shows that the NFA is still sending clarification on how they want rules implemented by brokers, almost a year after the rules first went into effect.
This change at Oanda which goes into effect May 30, 2011 requires that traders on Oanda’s platforms be subject to FIFO irrespective of how a trader closes his / her position. Prior to this, traders at Oanda were not subject to FIFO if they closed trades on a ticket by ticket basis. FIFO applied to Oanda’s traders only when they applied offsetting trades (at market or entry) to close out existing positions. We have reached out to Oanda and are waiting for additional comments.
OANDA must follow a forex regulatory policy on how you close your trades
Starting May 30, 2011, OANDA is introducing “First In First Out” (FIFO), a Forex Trading policy that complies with National Futures Association (NFA) regulations. If you keep multiple open positions of the same size and same currency pair, this new trading policy may mean important changes to how you manage these trades.
What will happen when I try to close a trade?
You can tell which trades are oldest in the Trades table when you sort it by ticket number; the older trades have the lower ticket numbers.
You can still try to close any trade, but you will be warned if the oldest trade of the currency pair and unit size needs to be closed first. You will be given the option to close that oldest trade instead. Here is how the new interface works:
1. In the Trades table, you can still click any trade you want to close.
2. The trade ticket window appears, allowing you to modify or close the trade. (By default, it is set to close trades.)
3. When you click Submit:
If the trade is the oldest trade of the same currency pair and unit size, you receive a confirmation it was closed.
If the trade is not the oldest trade of the same currency pair and unit size, a message tells you the trade cannot be closed. You are given a choice to either close the oldest trade instead, or to cancel the request.
Grab your latest copy of the Forex Magnates Retail Forex Industry Report for Q1 2011.
