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Blogs about basic information in forex trading, forex participants and how to earn big in forex trading.Hi everyone As you know, we are requesting top U.S Forex executives to give us their view about how new NFA requirements are changing - for good? - the US & Worldwide Retail Forex Industry. After publishing the view of Gary Tilkin, President & CEO at GFT and Drew Niv, CEO


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Hi everyone

As you know, we are requesting top U.S Forex executives to give us their view about how new NFA requirements are changing - for good? - the US & Worldwide Retail Forex Industry.

After publishing the view of Gary Tilkin, President & CEO at GFT and Drew Niv, CEO at FXCM, today I have the pleasure to welcome here to Glenn Stevens, CEO at GAIN Capital (Forex.com).

Glenn has been recently named as a finalist for the Ernst & Young Entrepreneur Of The Year(R) 2009 Award. The awards ceremony will take place on June 23 in Teaneck, N.J.

Thanks a lot Glenn for your collaboration and I wish you all the luck in the world to win Ernst & Young Award June 23rd.

Francesc

Questionnaire

1. The new NFA rule eliminates the ability of traders to hedge open trades; there has been a lot of discussion about how retail traders may respond to the new rule. How much of your current business do you feel may be lost to off-shore retail brokers?

Our proprietary trading platform, FOREXTrader, has always used the FIFO method. Having said that, we do believe there is a legitimate need for this type of functionality. Automated trading is becoming more popular as some traders are building portfolios using several different strategies and running them simultaneously. Our FOREX.com division supports trading via MetaTrader, Ninja Trader and other third party systems that heavily focus on automated trading. This approach sometimes means being long and short on a specific currency pair at the same time, in order to accommodate different trading strategies with different time horizons, etc.
In light of the new NFA regulation, we decided to offer our customers a choice - if they require hedging capabilities they may trade through our FSA registered entity, FOREX.com UK.

2. Do you think properly educated clients regarding hedging could reduce losses to over-seas brokers?

Most traders won’t miss hedging. But the ones who want hedging will seek out it and go overseas – hopefully to a regulated entity rather than an unregulated one.

3. Do you feel the FIFO rule could negatively affect other strategies or multiple strategies executed in the same account? What else would you caution your traders to be aware of with regards to the new rule?

This is a non-issue for us as we offer both types of accounts – FIFO accounts and hedging enabled accounts.

4. The NFA stated hedging provides no direct economic benefit and may result in higher transactional impact; have you seen any evidence to contradict that? Have you seen any evidence that indicates removing the ability to hedge will actually reduce a traders risk profile over time?

NFA was mostly right. For most traders, hedging provides no benefit and may cost more. But, clearly, they did not understand all the possible uses of hedging and this created the unintended consequence of the new rule - some US traders have moved their accounts overseas.

5. In their report the NFA noted that in a hedge, interest roll-over should wash but typically doesn’t; how do you account for the discrepancy?

When you are both long and short a pair, you are essentially engaged in two transactions and each of them does and should have a spread associated with it. This is true whether we are talking about the price or the interest roll over.

6. A simple work around to the current rule appears to be dual accounts at the same or even different brokers. Is there a downside to this approach traders should be aware of?

Having two accounts is a potential work around, but definitely more cumbersome and complicated than one account, as there are two separate collateral amounts and two margin requirements to manage.

7. Will your firm promote the dual-account strategy to keep clients and what can you do to help streamline the process for your current clients who implement hedging?

The dual account approach is not an ideal solution and we don’t think it will prove popular with many traders. Our customers have a choice – they can opt to either trade with our UK entity with hedging or with our US entity with no hedging. The transfer of existing customers to our UK entity has been well integrated into our processes and there was no disruption to their trading.