NFA to Prohibit Hedging

When the National Futures Association first submitted the recommendation to the Commodity Futures Trading Commission to essentially ban hedging a number of months back it caused a little ripple amongst traders.

At the time I thought it was a terrible knee-jerk reaction to something that so many had grown so accustomed to, but everyone needs to know and can see that the industry has been evolving on all sides over the past five years or so.

So it was no surprise to receive news from the NFA yesterday entitled “Effective Date of NFA Requirements Regarding Forex Orders.” You can visit the NFA site to read it in its entirety, but the basic overview is:

NFA has received notice that the Commodity Futures Trading Commission has approved new NFA Compliance Rule 2-43 regarding forex orders. The prohibition on carrying offsetting transactions will be effective for any positions established after May 15, 2009. The requirements regarding price adjustments will become effective as to all customer orders executed after June 12, 2009.

The next knee-jerk reaction is surely going to come from those non-conformists – many of whom seem to have infiltrated the Forex ranks over the years, creating a sense of entitlement and “how dare anyone try to screw with me attitude.” But those folks will say just go around the NFA to non-NFA registered firms or go offshore.

My word of advice to US traders? The playing field is going to change world wide – don’t think Forex will always be the state it’s in now. I’m sure more on this will emerge in the coming days.