NFA clarifies retail forex brokers' account profitability calculation methods

After much controversy over how EXACTLY do US retail Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term brokers calculate their clients' profitability and whether all brokers use exactly same methods or not NFA has just issued a clarification. Unfortunately and probably due to loud protests from most brokers NFA decided that this calculation will NOT include dormant accounts which were paid interest. This was specifically aimed at Oanda who is known to be the only broker to pay interest into accounts and hence had higher profitability numbers.

However while on one hand it unifies all brokers on the other hand it send a negative message to the market - instead of stimulating brokers to start paying interest to client accounts (like most non forex brokers do) NFA basically says that there's no need to do that. I don't suppose Oanda will stop paying interest just based on this change of calculation methods but I do think that the NFA has made the wrong decision here - if this doesn't improve brokers' metrics why would they start paying interest to clients? Another bad call by the NFA.

Here's the relevant excerpt from NFA's clarification:

"NFA has received a number of questions regarding what it means to be an "open" account for purposes of this calculation. For example, there is some confusion regarding whether an account that maintained a cash balance, but had no open positions and no trading during quarter, should be included in the calculation.

After consultation with CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term staff, NFA provides the following information:

The calculation, including determining the total number of non-discretionary retail forex customer accounts maintained by the RFED and FCM that quarter, should include only accounts that executed any trades during the quarter and/or had an open position at any time during the quarter. Any account that did not execute any trades or have an open position during the quarter should not be included in the calculation regardless of whether the account maintained a cash balance and/or was paid interest or charged any fees during the quarter."