The National Futures Association has banned hedging in all forex accounts in the United States. The reason for the ban is unclear at this point.
Hedging is when you are allowed to enter offsetting positions at the same time. In other words, you can be long 1 lot of GBPUSD and short 1 lot of GBPUSD without the second position closing out the first.
I don’t think that this new rule is going to have that much of an impact on most forex traders. The reason being is that most forex traders use a hedge to ’stop the bleeding’ on a position in the hopes that it will come back.
In my opinion, you are better off just closing the position and reversing instead of having to worry about two bad positions instead of one.
The only reason I could see to hedge is if you were entering on two different setups at the same time. For example maybe you took a breakout trade, but then a MACD divergence trade also sets up in the opposite direction while the breakout trade was on.
Anyway, this new rule doesn’t impact me at all but I’m sure there are traders who use it profitably. I’m sure they will figure out a way to get around it. Can anyone say multiple accounts?
Here it is:
http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=2273
I’ve never been able to hedge using my broker anyway. At times for example I’ve wanted to go short on a lower timeframe and long on the higher timeframe on the same pair. The second trade placed always cancels out the first. I have recently considered more than one account. So really the ban would solve nothing
Very true, I’m glad it’s a harmless change.
Most profitable traders hedge. Not always with that intent but since they tend to enter trades when the opportunity presents itself; whether it is long or short and irrespective of what other positions they have open, it is inevitable that they will have offsetting positions open at one time or another. I trade the same way, I see an opportunity, enter, set and forget about it. Almost all of them end up being profitable since we all know that prices go up and down. NFA’s ruling is simple. It was designed to thwart this type of successful winning traders. The reasoning is very clear. It is not designed to protect traders or the market. Think about it. They don’t mention their reasoning… they just announced it. Pathetic.