When the forex market first became accessible to retail investors in the 1990s as the Internet surged in popularity, forex trading was fairly unregulated, especially compared to other asset classes such as stocks and bonds. Not to mention the fact there is little or no regulation pertaining directly to the sale and use of forex robots.

Regulators in the United States have a penchant for getting involved in areas where they’re not always welcome and can have an adverse impact in that area once they arrive. Given recent action by the National Futures Association (NFA), it is obvious that the forex market has become the new frontier for US regulators to sink their teeth into.

As of right now, the most direct impact increased regulation has had on forex robots is that traders using a forex broker based in the U.S. have had their hedging capabilities stripped away from them. This means that traders using a US brokerage account cannot be long and short in the same pair at the same time. As we covered in a previous article, this limits the ability of many forex robots that rely on hedging to generate pips. Regardless of whether or not they use a forex robot to trade with, many traders rely on hedging to bolster their results and those in the U.S. have been force to take their business to brokers based offshore or an unregulated broker.

On The Warpath

The NFA’s quest to regulate forex retail forex trading began in earnest in 2008 and by late 2008, there were 29 regulated forex brokers available to US investors. That number dwindled to 14 by March 2009, frustrating investors and rendering many forex robots almost useless in the process. That’s right, there are only 14 regulated forex brokers left in the U.S. This lack of competition hampers pricing power for the consumer. Hey, the brokers know that most traders feel more comfortable with a regulated broker and that some will even give up use of their forex robots to remain with a regulated US broker.

Then again it appears the NFA doesn’t particularly care if traders and their forex robots can use hedging techniques. One NFA official even said that traders using what he termed to be “sound trading techniques” would not feel the effects of the hedging regulation.

More Consequences

Another consequence of there being fewer brokers on the block is that FXCM has gained a dominant share of the retail forex market in the States. Alpari recently entered the US market and other major players include, GFT, Forex Club, MB Trading, IBFX, PFG, Oanda and FX Solutions. FXDD is also trying to enter the US market, but GFS recently announced it is leaving.

The truth is the US market is far more regulated than foreign forex markets are and it remains to be seen whether or not this is a good thing. One thing is certain: If you love your forex robot, you’ll have to use an unregulated broker or move your account offshore.

Author Bio: 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 Forex Robots) and I currently manage trading accounts at two Forex brokers in the US and in UK respectively

Category: Finances
Keywords: Forex Robots, Day Trading, Forex, Forex Brokers, Finacial Advisors, Expert Advisors