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Ask Your Advocate: Does FIFO Affect Your Forex Trading?

23 Years ago | January 28, 2014 1/28/23, 12:00 AM

Question for the Advocate:

What is FIFO and how does it affect my trading?

 

 

 

 

jay meislerYour Advocate Says:

FIFO (First In First Out) is an accounting term that applies to over the counter forex trading in the U.S. Prior to 2009,  U.S. traders could choose which forex positions to close. This changed with NFA Compliance Rule 2-43 (b), which says

Forex Dealer Members may not carry offsetting positions in a customer account but must offset them on a first-in, first-out basis. At the customer’s request, an FDM may offset same-size transactions even if there are older transactions of a different size but must offset the transaction against the oldest transaction of that size.

In reality, it really doesn’t matter as your open positions are constantly being marked to market (look at your account balance) but on your platform they appear at the entry price until there is an offsetting trade. This has been a big complaint by U.S. traders as those running positions prefer to keep their open positions at the entry price rather than seeing them closed out by FIFO.

As an example, let’s say you are long EURUSD at 1.3575 and this is your core position. However, when you buy at 1.3445 and sell at 1.34600. The 1.36600 sale will offset your 1.3645 long and your open position will now show as 1.3645 although your core position is actually still long at 1.3575.

So U.S. traders have to do some mental bookkeeping to keep a record of where they actually opened a position. This is an issue we hope to raise with the NFA once we build our membership to the point where we can have leverage with regulatory bodies.

 

NFA Compliance Rule 2-43 Q & A

 

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