Forex Commentary

The NFA is supposedly going to force traders manage their positions using FIFO. FIFO (First In First Out), however, is an inventory method used to assess the cost of bulk inventory, and forex positions are not bulk inventory. Each position is individually tracked. Therefore, there is no question about the cost of a trader’s positions. There is no question in my mind that if this is in fact being forced upon traders, that it is being done so not in the name of transparency, but to incapacitate responsible trading methods that utilize time frame considerations and position cost averaging.

I’ve also heard that hedging is getting eliminated. The whole reason why so many investors went bankrupt over the past 18 months is that they were not hedged when they should have been.

Does anyone know who pushed for these changes? Can anyone tell me why I should rethink my opinion of why anyone would want these rules in place? Can anyone give a me a starting point for the legal reasoning behind any of this?

I don’t trade FOREX, so I’ll treat this as a general securities question.

FIFO has a major effect on taxes, since it determines the holding period. For example:

Buy qty 100 XXX on 3/4/2007
Buy qty 100 XXX on 3/4/2008
Sell qty 100 XXX on 9/4/2008
Sell qty 100 XXX on 3/5/2009

By FIFO, this is two long term trades (18 + 12 months), but by LIFO, this is one short term trade (6 months) and one long term (24 months). I think FIFO makes more sense. Besides taxes, I’m unaware of other affects (perhaps you could give an example).

In terms of "no hedging," this sounds like yet another one of the ideas to enrich banks/brokers (Goldman Sachs, etc.) at the expense of investors. I also think this will blow up in their face, just like temporarily removing shorts did (the only ones allowed to short were brokers, which they did with glee and then sold expensive put options to investors).