NFA Compliance Rule 2-43b


DEFINITION of 'NFA Compliance Rule 2-43b'

A 2009 rule implemented by the U.S. forex industry's self-regulatory organization, the National Futures Association (NFA), regarding forex trading by U.S. regulated forex companies. It prohibits hedging by requiring multiple positions held in the same currency pair to be offset on a first-in, first-out (FIFO) basis. It also prohibits price adjustments to executed customer orders except to resolve a complaint in the customer's favor or in the case of certain straight-through processing transactions, and these changes must be reviewed, approved and documented by the NFA.

BREAKING DOWN 'NFA Compliance Rule 2-43b'

Traders refer to Rule 2-43b as the FIFO rule. The rule's supporters say it increases transparency for customers and brings forex trading practices more in line with those of the equities and futures markets. The change forced many forex firms to change their trading platforms because the old software allowed users to choose which orders they want to close out, thus not complying with the FIFO rule. Under the new rules, it is still possible to place stop and limit orders, but they must now be entered differently. It was also possible to avoid the changes altogether by moving one's forex account to a firm in another country where forex trading rules are different.

  1. Limit Order

    An order placed with a brokerage to buy or sell a set number ...
  2. Stop Order

    An order to buy or sell a security when its price surpasses a ...
  3. National Futures Association - ...

    The independent self-regulatory organization for the U.S. futures ...
  4. Forex Market

    The market in which participants are able to buy, sell, exchange ...
  5. First In, First Out - FIFO

    An asset-management and valuation method in which the assets ...
  6. Implied Volatility - IV

    The estimated volatility of a security's price.
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