Note: This article was originally written on Sept. 9, 2009. Some information on brokers may no longer be true.
Since the NFA changed it's rules on FIFO and hedging Forex, we are not able to take opposite trades in the same currency pair, in the same account. I did get a couple comments on this blog about how it's unfair and how the ‘man' is trying to screw them, boohoo, blah, blah, blah.
This didn't bother me at first because I never hedge just for the sake of hedging. I believe that hedging can work for some people, but many times it's just a sign of indecision.
However, during the course of normal trading, I have realized that there are times when I see a good scalp trade in the opposite direction of my longer term position. Having only one account with the new rules does not allow me to take that second trade.
So what is the answer? Cry about it to anyone who will listen?
Of course not…
Why You Should Use a Forex Sub-Account
Just open a second account or a sub account, depending on your broker. It may be more beneficial to open an account at another broker just so you have a backup in case your primary broker is down for some reason.
However, if you are strictly using a hedging strategy, a sub account would probably be best because there will probably be a variance in spreads between brokers, which will eat into your profit.
Oanda features sub accounts so I can trade in different accounts on the same screen. Makes it very simple but you have to weigh the pros/cons of each broker. Your needs may be different from mine.
For example, Oanda has really tight spreads, allows variable lots sizes and is a reputable company, that is why I execute most of my trades with them.
The downsides are that they don't use the MT4 trading platform so I can't use any auto-trading programs in that account and their leverage is very low (compared to other retail brokers), only 50:1. That is fine for ordinary trading, but for more aggressive techniques, I need much bigger leverage.
For those reasons, I opened an Alpari-US account and will be reopening an IBFX account. The Alpari account uses MT4 and and pretty tight, stable spreads, so that is good for trading an autotrader program.
The IBFX account offers up to 400:1 leverage so that is what I need to trade the Counter Trend System. In this system, it is more important to me to have big leverage than to have the tightest spreads to avoid margin calls.
As you can see, sub accounts and multiple accounts can be VERY useful.
They are not only good for hedging, but can exploit the strong points of a broker, depending on your needs. I think the only people complaining about the new NFA rules are the people NOT making money.
I hope your trading is going well!
Update: Since this post was originally written, I've developed a hedging strategy. You can learn about it here.