FIFO Rule: The Position-Closing Order CFTC Brokers Must Follow
Macro Glossary, Broker and Prop
By Ken Chigbo, macro trader and founder of KenMacro, 18+ years in markets.
Updated 2026-05-20
The desk’s answer
The FIFO rule (First-In First-Out) is the CFTC and NFA requirement that US-regulated forex brokers close the oldest position in a given pair first when a closing order is placed, before any newer positions in the same pair. The rule effectively prohibits hedging on the same account: if a US trader is long EUR/USD and then opens a short EUR/USD, the short is treated as closing the long position, not as a hedge. The FIFO rule applies only to CFTC-regulated US forex accounts; FCA, ASIC, CySEC and offshore brokers do not impose FIFO and freely permit hedging.
Defined term, FIFO rule
The FIFO (First-In First-Out) rule is the CFTC and NFA requirement that US forex brokers close the oldest open position in a given currency pair first when a client places a closing order, before any newer positions in the same pair. The rule also effectively prohibits opening offsetting positions in the same pair (hedging), since the offsetting trade is treated as closing the earlier position rather than as a new hedge.
How FIFO works mechanically
When a US-regulated forex trader has multiple open positions in EUR/USD (say three longs opened at different times and prices) and places a closing order, the broker must close the oldest of the three first, then the second-oldest, then the newest, in strict chronological order. The trader cannot choose to close a specific position. Similarly, if the trader opens a short EUR/USD while holding long EUR/USD, the short is netted against the oldest long, closing that position partially or fully. The two positions cannot coexist as a hedge on the same account.
Why FIFO exists
The CFTC and NFA introduced FIFO in 2009 to address what they viewed as deceptive marketing of hedging strategies to US retail traders. The regulator’s view was that simultaneous long and short positions in the same pair on the same account incurred double spread costs without any economic benefit, since the net position was flat. FIFO forces the trader to close the existing position before establishing the opposite direction, eliminating the redundant spread cost. The rule is controversial outside the US (other regulators allow hedging) but the CFTC has maintained it for over 15 years.
Practical implications for US traders
Three. First, hedging strategies that work on FCA or ASIC accounts (locking in a profit by opening an offset, then re-opening directionally later) do not work on CFTC-regulated US accounts; the offset closes the original position. Second, US traders running multiple strategies on the same pair must either use a single net position or run multiple sub-accounts. Third, the FIFO rule is one of several reasons US retail forex brokerage is structurally different from the rest of the world (alongside 50:1 leverage caps and the FDM dealer model). US traders who want hedging often open offshore accounts, but doing so puts them outside CFTC protection.
Frequently asked
What is the FIFO rule in forex?
The CFTC and NFA requirement that US-regulated forex brokers close the oldest open position in a given currency pair first when a closing order is placed, before any newer positions in the same pair. The rule effectively prohibits hedging by netting offsetting trades against the earliest position.
Why can’t US traders hedge in forex?
Because the FIFO rule treats an offsetting trade as closing the earliest position rather than opening a new hedge. The CFTC introduced FIFO in 2009 on the view that simultaneous long and short positions in the same pair incurred double spread costs with no economic benefit. The rule has remained in place for over 15 years.
Does FIFO apply outside the US?
No. FIFO is a CFTC/NFA-specific rule. FCA (UK), ASIC (Australia), CySEC (EU), and offshore regulators do not impose FIFO and freely permit hedging. US traders who want hedging often open offshore accounts, but doing so removes CFTC protection and exposes them to higher counterparty risk.
What this means at the desk
FIFO is the US-specific rule. If hedging is part of the plan, the account must be non-CFTC.
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