"Hedging" isn't a trading technique, it's an accounting practice. You can take your "hedging" strategies and execute the same trades using FIFO accounting and you will get the same results or better.
I'm not in favour of extra regulation, but you can see why regulators would have their sights on this rather clever scam.
First, the definition of hedging. True hedging most certainly is a time honored trading technique/strategy. It's used successfully by experienced traders in a variety of flavors and markets. But lets re-examine how hedging is defined in the actual wording of the proposed new rule:
The other trading practice NFA believes must be addressed
involves a strategy that FDMs refer to as “hedging,” where
customers take long and short positions in the same
currency pair in the same account.
I find it very revealing that, according to the NFA, their very own members supposedly refer to this practice as hedging. We all know this is not the definition of true hedging! The NFA also knows this and so do their FDMs. This is proven by the fact that the word "hedging" is prominently displayed within quotations. I'm willing to bet that account reps at bucket shops only use the term with newbies to make them think they're using an advanced trading tactic. Most newbs will fall for it and consequently lose their asse(t)s.
Liquidity, baby! It's all about liquidity!
Your second point is summarized later in the same document:
NFA believes that the potential for misuse outweighs any
perceived benefits from allowing customers to carry long
and short positions in the same currency in the same
account. Therefore, Compliance Rule 2-43(b) bans the
practice and requires FDMs to offset positions on a first-in,
first-out basis (FIFO). It does, however, allow customers
to direct the FDM to offset same-size transactions.
Anyone who is interested should read the entire document to better understand that last paragraph in context.
I see no benefit for the retail trader. I think it's a lot of good-sounding rationalization under the guise of combating fraud and protecting newbies from their own inexperience (or stupidity) to further justify stacking the deck in favor of the FDM. I may be somewhat off base on the details but I don't think I'm off by very much.
