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Recently, the National Futures Association instituted new rules about hedging and first in first out (FIFO). This changes the way that many people will engage in forex trading in the future. For those who use stop loss orders, it might be difficult to effectively do what is needed, since the new ruling insists that the first trade open must be the first trade closed. Kirk Norwood, from Forex Strategy Secrets, explains the FIFO rule, and how to get around it in forex trading:

This means the first trade in needs to be the first trade closed if you have more than one trade on the same currency and with the same lot size.  The key here is the lot size.  If you are going to add on to a trade and want to use Stops as we teach, you can still do this but you have to change the lot size.   If you have a 1.0 lot trade on, the rest of the trades on that currency pair need to have a different lot size i.e. 1.0 lot, 1.01 lot, 1.2 lot, 1.02 lot, etc.  As long as the lot size is different you can use the stop loss principle.

This is an important distinction. The use of stop loss orders when trading forex can be a good way to limit your losses in many cases. By observing the proper method of entering positions, you can ensure that you automatically exit them as desired.

Another change is to hedging. A direct hedge can no longer be used when trading forex. However, it is possible to get around this by using a three currency method, instead of a two currency method. For example:

• Buy dollar while shorting the sterling.
• Buy sterling while shorting the euro.
• Buy the euro while shorting the dollar.

It’s a round about way of getting there, but you make it eventually.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

While I am not one for future trading, there are plenty of folks who make money by trading futures of all kinds. Like any other type of investing, it is important to be careful of what you are doing — to develop a plan and stick with it. Futures trading is risky, but it can be even riskier if you make these four mistakes:

1. Not limiting your risk. There is no way to completely get rid of risk in any type of investing. This is especially true of futures trading. However, there are some things that can be done to limit your risk and protect yourself from larger losses. You can use stops, or puts, to help you maximize your performance.
2. Abandoning your strategy. Many futures traders have specific strategies and systems that they use when engaging in futures trading. Have a system helps you take emotion out of the market, leading to trading decisions that are based on more objective data. Using a system can help you limit your losses and take your gains. You will still lose on trades, but sticking with a strategy can help you make up for the losses with overall gains.
3. Shunning new ideas. While having a strategy is important, and you don’t want to outright abandon it, it is still important to be open to new trading ideas and tweaks to your system. Market conditions are going to change, and in futures trading you need to adapt. It’s about finding the right balance.
4. Being distracted. Because futures trading is what one might call a “job”, you are more likely to be successful when you focus. During times when you are trading, or doing research, or watching the markets, try to avoid distractions and focus on the job at hand.

With any type of investment, you will lose some trades and win some. However, if you avoid these common futures trading mistakes, you might be able to earn more than you lose, making you a more successful trader.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.