As a forex trader, you may have heard of the FIFO (First In, First Out) rule, which requires you to close your oldest open positions first when multiple positions are open in the same currency pair. This rule was introduced by the National Futures Association (NFA) in the US in 2009 to protect traders from incurring huge losses due to mismanagement of their positions. The FIFO rule is a part of the NFA’s regulatory framework for forex brokers, and it applies to all US-based brokers and their clients.
The FIFO rule has been a subject of controversy among forex traders, as it limits their ability to manage their open positions in a way that suits their trading strategy. Some traders believe that the rule is too restrictive and prevents them from maximizing their profits, while others argue that it is necessary to prevent reckless trading and protect the interests of traders.
If you are a forex trader who wants to get around the FIFO rule, there are several strategies you can use. However, it is important to note that these strategies may not be legal or allowed by your broker, and you should always check with your broker before using them.
1. Use multiple accounts: One of the easiest ways to get around the FIFO rule is to open multiple trading accounts with different brokers. This allows you to open multiple positions in the same currency pair without violating the rule. However, this strategy can be costly, as you may have to pay multiple fees and spreads on each account.
2. Use hedging: Another way to get around the FIFO rule is to use hedging. Hedging involves opening a position in the opposite direction of your original position, effectively cancelling out your exposure. This allows you to keep your original position open while opening a new position in the same currency pair. However, hedging is not allowed by all brokers, and it can be risky if not done properly.
3. Use FIFO-compliant pairs: Some brokers offer currency pairs that are not subject to the FIFO rule. These pairs are usually exotic or minor pairs that are less liquid than the major pairs. By trading these pairs, you can avoid the FIFO rule and manage your positions more effectively. However, trading exotic or minor pairs can be risky, as they are more volatile than the major pairs.
4. Use position sizing: Position sizing involves adjusting the size of your positions based on the risk involved. By using position sizing, you can open multiple positions in the same currency pair without violating the FIFO rule. For example, if you have two open positions in the same currency pair, you can reduce the size of your oldest position to comply with the FIFO rule. However, this strategy requires careful calculation and risk management, and it may not be suitable for all traders.
5. Use a non-US broker: If you are not based in the US, you can use a non-US broker that is not subject to the NFA’s regulatory framework. These brokers may not have to comply with the FIFO rule, allowing you to manage your positions more effectively. However, using a non-US broker can be risky, as they may not be regulated or may not offer the same level of security and protection as US-based brokers.
In conclusion, getting around the FIFO rule can be challenging, but it is not impossible. By using the above strategies, you can manage your positions more effectively and avoid the restrictions imposed by the rule. However, it is important to note that these strategies may not be legal or allowed by your broker, and you should always check with your broker before using them. Additionally, it is important to manage your risk carefully and avoid reckless trading, as this can lead to huge losses and damage your trading career.
