ForexNewsNow – On March 26, 2012, the US National Futures Association (NFA) began implementing some new directives that impose several requirements that forex brokers will have to follow when executing a forex trade made by US clients. The new directive creates a more fair and secure trading environment to forex traders.
The new directive addresses the issues of forex broker requotes and forex broker slippage. These issues always represented a problem for most traders and allowed dishonest forex brokers to churn off additional money by abusing the lack of a clear regulation in this regard. The directive, entitled NFA Compliance Rule 2-36, was approved by the Commodity and Futures Trading Commission and was issued on January 26, 2012 but only became effective on March 26, 2012.
New Rules Regarding Slippage and Requotes
The first directive prescribes that all forex brokers will from now on have to apply slippage uniformly. The rule also says that this has to be done regardless of the development of the market. The intention of this new rule is to standardize the way slippage is applied, what in the end will highly benefit the end-customer.
The second directive requires that if forex brokers are requoting prices when the market has moved against them, then they will also have to requote prices if the market moves in favor of them. This means that from now on forex brokers will also make requotes that would be to the advantage of traders. Up until now requotes were only made to the disadvantage of the trader.
The third directive prescribes that forex brokers will have to clearly state the manner they perceive slippage and apply requotes. This should be done in a manner that will be understood by all traders before they place a forex trade. According to the directive, brokers will also be obliged to notify existing clients regarding the way they handle price changes.
Forex brokers will also be obliged not to use any advertisement material that might mislead traders regarding the way the brokers handle price changes.
Consequences of the New Directives
The new forex broker regulations were created with the intention of making online forex trading more fair. The new directives are a long awaited change that will finally standardize the way regulated brokers handle the issues of forex broker requotes and forex broker slippage.
The new rule regarding slippage will ensure that the same procedures are followed in every situation. This creates more transparency making sure that the trader is always well-aware of every aspect of its bet.
The new directive regarding requoting is probably the biggest change introduced by the new regulation. It will make sure that forex brokers will also requote the client when the market moves to the benefit of the broker. So far, requotes were only done when the market moved to the detriment of the broker.
The final rule addresses transparency. This will make sure that forex brokers are always transparent and honest regarding the way they handle price changes. This will make sure that all the information regarding these issues will always be at hand to evaluate. Furthermore, no promotional material that might mislead the trader regarding the way a broker handles price changes shall be used.