Risk Management Under FIFO
Placing Stops and Limits
Effective August 2, 2009, the NFA has required a first-in, first-out (FIFO) method of trading. The NFA rule 2-43 (b) does not permit the attaching of stops and/or limits to an individual trade as previously allowed.
To place stops/limits on trades you will need to use entry orders in the opposite direction.
To place an 'entry' order, right click on the instrument (or you can use the 'Order Selection' feature above the rates), select the order you want, set your price, and set the number of lots you want.
You can set multiple stops and limits if you have more than a 1 lot position by repeating the above process. Each entry stop/ entry limit will appear in your ‘Pending Order’ section on the platform under the ‘Trading’ tab.
Another way to set a stop/limits is by highlighting an open trade and clicking the ‘stops/limits’ button. This will create a one-cancels-other (OCO) order. This order can only be used if you place BOTH a stop and a limit. When one side of the order activates it will cancel the other side of the order. If you do not want both a stop and a limit then you must use the single entry order method as stated above.
To place an 'entry' order, right click on the instrument (or you can use the 'Order Selection' feature above the rates), select the order you want, set your price, and set the number of lots you want.
You can set multiple stops and limits if you have more than a 1 lot position by repeating the above process. Each entry stop/ entry limit will appear in your ‘Pending Order’ section on the platform under the ‘Trading’ tab.
NOTE: Once a stop/limit order is placed on an open trade it will appear in your pending order window as 2 ENTRY orders. Should you decide to close the open trade before the stop/limit is triggered, you must remember to cancel the 2 pending entry orders.
To cancel a pending order, simply highlight it and on the left side, click on ‘Cancel’.
Another way to set a stop/limits is by highlighting an open trade and clicking the ‘stops/limits’ button. This will create a one-cancels-other (OCO) order. This order can only be used if you place BOTH a stop and a limit. When one side of the order activates it will cancel the other side of the order. If you do not want both a stop and a limit then you must use the single entry order method as stated above.
OCO Example
In an effort to clarify the new "FIFO" rule, below is an example of trades that are executed in the order indicated.
| August 3, 10:00 | Ticket #1 | Buy EUR/USD | 1,000,000 |
| August 3, 11.34 | Ticket #2 | Buy EUR/USD | 500,000 |
| August 4, 08:30 | Ticket #3 | Buy EUR/USD | 350,000 |
| August 4, 09:15 | Ticket #4 | Buy EUR/USD | 650,000 |
| TOTAL Positions: | Long EUR/USD | 2,500,000 | |
August 4, 10:15 an OCO Order is created to sell 1,200,000 EUR/USD at a Stop price of 1.4002 and a Limit price of 1.4107.
August 4, 10:30 EUR/USD falls to 1.4002 and the OCO Order is triggered:
August 4, 10:30 EUR/USD falls to 1.4002 and the OCO Order is triggered:
Break down of remaining positions:
| Full close | Ticket #1 | Sell EUR/USD | 1,000,000 |
| Partial close | Ticket #2 | Sell EUR/USD | 200,000 |
| TOTAL Positions Closed: | Sell EUR/USD | 1,200,000 | |
Since the Stop portion of the OCO Order was triggered the Limit portion of the OCO Order is cancelled. The remaining position is long 1,300,000.
Close All Function
The existing GTS "Close All" functionality will continue to be available and will not be affected by the introduction of FIFO. However, you must be aware that when using the "Close All" functionality or the manual "Close All" functionality, all open positions in a particular instrument will close. The risk management orders which were set in relation to these open positions will require you to close them manually.
Close Trade Function
The "Close" button is only enabled for the oldest ticket in an instrument. In situations where there are multiple trades open, the "Close" button will only allow you to close the oldest trade in each instrument.
How to identify the oldest trade in each Instrument
You may identify which trade is eligible to be closed by clicking on the ticket ID for the trade. The oldest trade will activate the Close button. Additionally you can add a timestamp to each trade, which can be found by right clicking on the header in the open trades section, selecting "Time" and clicking "Submit".
You may identify which trade is eligible to be closed by clicking on the ticket ID for the trade. The oldest trade will activate the Close button. Additionally you can add a timestamp to each trade, which can be found by right clicking on the header in the open trades section, selecting "Time" and clicking "Submit".
Calculating P/L Under FIFO
In an effort to clarify the new "FIFO" rule, below is an example of trades that are executed in the order indicated.
Break down of remaining positions:
| August 3, 10:00 | Ticket #1 | Buy EUR/USD @ 1.4052 | 1,000,000 |
| August 3, 11.34 | Ticket #2 | Buy EUR/USD @ 1.3917 | 500,000 |
| August 4, 08:30 | Ticket #3 | Buy EUR/USD @ 1.4013 | 350,000 |
| August 4, 09:15 | Ticket #4 | Buy EUR/USD @ 1.4008 | 650,000 |
| TOTAL Positions: | Long EUR/USD | 2,500,000 | |
August 4, 10:15 a market order to sell 1,200,000 EUR/USD at 1.4000:
You will realize a loss of $3,540.00. The open 1,300,000 position will have a Mark to Market (MTM) profit of $1,515.00.
| Ticket #1 | Long EUR/USD | 300,000 | |
| Ticket #2 | Long EUR/USD | 350,000 | |
| Ticket #3 | Long EUR/USD | 650,000 | |
| TOTAL Positions: | Long EUR/USD | 1,300,000 | |
You will realize a loss of $3,540.00. The open 1,300,000 position will have a Mark to Market (MTM) profit of $1,515.00.