Bad news for all the “hedgers” and would-be’s out there. The NFA is telling those brokers who allow holding simultaneous long and short positions that they are to offset them effective May 15th. See the press release here: National Futures Association | News Center
Basically, what the NFA is saying is that if you are already long and attempt to go short (or vice versa) the new trade will offset the old one and you will end up flat with no trades open. Of course that is effectively what you’re doing anyway, but with “hedging” permitted the brokers who allowed it (and in some cases encouraged it) were basically bilking traders out of extra spread pips.
Yes, for sure it’s sad for all Hedgers out there, US broker based Hedgers that is. As you know people who trade with brokers who have other global offices, such as me with ACM in Switzerland, can happily keep on hedging. I don’t know how the US pure FX brokers are going to react, one thing is for sure, they will lose some custom. Did the NFA put that in the balance before their decision? Many many traders hedged, whether they made profit or not is not the question, no one put a gun to their head. The question is about freedom to choose, this has now been removed.
I would not be surprised at all to see other global regulators follow suit. I’m guessing the NFA was looking at it from the perspective of the futures markets where the offsets have always been done and where “hedging” has a different meaning. I can see the NFA folks hearing about “hedging” and going “They do what?”
Open up two accounts with two different brokers and hedge all you want. The ban does nothing but prevent brokers from profiting on both ends of the hedge.
You could also open up 2 accounts with the same broker. One in your name and the other in a company you control.
The point however is that you need to post two times the margin as each is margined separately.
There IS HOWEVER a way to do it with one particular broker and you can run a hedge in ONE account without breeching the new regulation, be legal and NOT have to be margin twice. In fact the margin is ZERO, as it should be.
Those who absolutely NEED to have the hedge facility can contact me privately.
Sorry about a possible dumb question, but I am a newbie… So with those rules am i not allowed to go long, close, then go short during the day on one currency? Or is that only In regard to two actions in an overlapping timeframe?
We are talking about one currency pair, correct? Or am I not allowed either to trade one pair long, and another pair short… That would be ridiculous In my humble opinion…