Up until recently, forex trading had been fairly unregulated, especially when compared to asset classes like stocks, options and commodities. And certainly there isn’t much in the way of regulation as it pertains to forex robots, but that may be changing and not for the better.
Unfortunately, US regulators that oversee financial often don’t have direct experience as traders and even worse, they tend to come up with ideas that favor institutions and hamper retail traders. Their latest concoction from the laboratory of bad ideas is a plan that was recently instituted that forbids only retail traders from being long and short the same currency pair at the same time. Obviously, this is bad news to begin with, but this a fairly popular strategy among users of forex robots because a forex robot can be easily programmed to trade from both the long and short sides in the same pair at the same time.
There’s more bad news for US-based traders and we’ll take a look at why some of these traders may want to consider moving their accounts offshore.
Declining Competition
The National Futures Association (NFA) is the regulatory agency that oversees currency brokers in the States, though the Commodities Futures Trading Commission (CFTC) does have a heavy footprint when it comes to forex trading in the U.S. The NFA really started dropping the regulatory hammer in 2008 and that has helped lead to a steep decline in the number of forex brokers operating in the U.S. In late 2008, there were nearly 30 forex brokers US traders could choose from, but by March 2009, that number had fallen to 14 as many brokerage firms found it too expensive and cumbersome to comply with all the new rules US regulators had set forth.
This lack of choice is going to force traders and forex robot users to either move their accounts offshore or trade with an unregulated broker, though if the NFA has its way, US-based traders won’t be able to do that either. The ways things are looking, there may only be a few dominant players, like FXCM, left in the US market before too long.
More Absurd Regulations
As if everything else we’ve mentioned here isn’t bad enough, US regulators have found another way to impair forex robot users. A new regulation now forbids the use of stop-loss orders, but this only applies to retail traders. This is a precarious situation for forex robots as so much of their efficiency lies in being able to use stop-loss orders. The way the new regulation looks, it’s going to be tough to leave your forex robots on autopilot and that makes us wonder if offshore is the best place to be US traders.
Retired Canadian Economist. My main activity since Winter 2006 is trading Forex. I’ve been trading currencies online with the help of EA’s (BTW, the best source for EAs is www.forex-robots.com ) and I currently manage trading accounts at two Forex brokers in the US and in UK respectively