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Proposal to phase out Hedging

  • #61
  • Apr 14, 2009 1:04pm Apr 14, 2009 1:04pm
Quoting mrgreen
While I do understand their reasoning, I don't agree w/ it. They should let the customers be damn fools and "shoot their eye out" if they want too.

Compliance Rule 2-43(b): Offsetting Transactions

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. NFA is concerned that customers
employing this strategy do not understand either the lack of economic benefit or the
financial costs involved....
oanda and most ecns don't have hedging anyway.
you can use sub acc to do it.
  • #62
  • Apr 14, 2009 11:40pm Apr 14, 2009 11:40pm
a trades a trade

any restrictions on opening trades is not in my best interest


itl cause me to have a 2nd account
who's interest is that?

if anything, id like to see a few restrictions removed
  • #63
  • Apr 15, 2009 1:52pm Apr 15, 2009 1:52pm
I think the gov shouldn't be telling me how to trade.
All I'm asking of them is protect my money from the thieves.
  • #64
  • Apr 16, 2009 4:39am Apr 16, 2009 4:39am
Quoting birdt
What's the problem? These appear to be beneficial changes for the retail trader, at least on the surface. There is no benefit in hedging. The FIFO system is exactly the same as hedging, just the way it is presented in your account is different and you will not get charged or margin called for effectively being flat in the market.

Answer this: If you are long 3 lots on EURUSD and simultaneously short 2 lots on EURUSD, what is the traders total net position in the market?

A. 5 lots
B. 1 lot
what kind of weird question is this...

just because you don't know how to make money in hedging doesn't mean the system is no good..
green pips
  • #65
  • Apr 16, 2009 6:21am Apr 16, 2009 6:21am
Quoting forexarch
what kind of weird question is this...

just because you don't know how to make money in hedging doesn't mean the system is no good..

Because the broker is charging you for lots that you do not own, ie. the 5, rather than the 1. That is why the NFA is banning it.

You either buy or sell. If you already have an open long position, then by going short and selling 2 lots, you are simply closing 2 lots of the 3 you bought earlier. There are no '2 positions' in the market apart from on your trading platform.

I don't know what the advantages of 'hedging' are, not one hedging advocate I have spoken to has ever put forward a convincing argument, but I invite anyone who can. It really makes no difference to me since I am either long, short, or flat, and so are you, but the difference is that I know it, but all the best to you anyway
  • #66
  • Apr 16, 2009 6:37am Apr 16, 2009 6:37am
All brokers will go down this route.
  • #67
  • Apr 16, 2009 6:58am Apr 16, 2009 6:58am
opening buy and sell on same currency pair isn't always for the propose of hedging. 2 or more trading system could be used on 1 currency pair and sometimes one system will trigger buy and the other will trigger sell before the buy is close. Both of them could end up getting their desire take profit.
  • #68
  • Apr 16, 2009 7:04am Apr 16, 2009 7:04am
I am aware of one individual (no names) who's Neural EA uses a 100k account to grid/hedge 8 currency pairs using micro lots. The system does place buy/sell on same pair with startling results/profits.

Having said that, he wont give me a copy of the EA.
  • #69
  • Apr 16, 2009 8:09am Apr 16, 2009 8:09am
The true reason behind the ban is that they know that you can make tons of money using the "hedge" feature. I wrote an EA that uses this. My account statement is a live proof that is works. It is becoming too "popular". They are protecting their own interests. Hidden agenda. Simple as that.
  • #70
  • Apr 16, 2009 8:18am Apr 16, 2009 8:18am
Quoting birdt
Because the broker is charging you for lots that you do not own, ie. the 5, rather than the 1....
Makes no difference to me either. These so called hedges are absolutely not a hedge. They are just an accounting devise of the dealer. Anything that can be done with a hedge, can be done cheaper and more effectively with proper order usage. So called hedging is only a lazy person's way of keeping track and it costs the trader twice as much for the privilege.
  • #71
  • Apr 16, 2009 8:23am Apr 16, 2009 8:23am
If you guys are hell bent on hedging, just open an account and then open a sub account. you can buy in one and sell in the other and both orders meet the NFA criteria.
  • #72
  • Apr 16, 2009 8:34am Apr 16, 2009 8:34am
Quoting smjones
If you guys are hell bent on hedging, just open an account and then open a sub account. you can buy in one and sell in the other and both orders meet the NFA criteria.
That's right! It is the NFA complicating the life of traders. You will have two platforms, two EAs and an external software to make the bridge between them. Why don't they let us alone? It is our money. We want to pay the (eventual) extra swap (there is no extra spread) for simplicity. I insist. They are not ignorant. There is a hidden agenda here.
  • #73
  • Edited 9:04am Apr 16, 2009 8:39am | Edited 9:04am
Quoting Jairo
That's right! It is the NFA complicating the life of traders. You will have two platforms, two EAs and an external software to make the bridge between them. Why don't they let us alone? It is our money. We want to pay the (eventual) extra swap (there is no extra spread) for simplicity. I insist. They are not ignorant. There is a hidden agenda here.
LOL, How are you paying more, by not hedging, you are in fact paying half as much. The only agenda I see is ignorance of market structure. I agree with you on one point though, I think if a "trader" wants to deliberately pay twice as much for the same trade and they are informed of this, let them. It is their money. So I think we have common ground on that.

But to say this prevents profitability, I cannot agree with. If a person uses trade orders correctly, it increases profitabilty by not over paying for the same trade.
  • #74
  • Apr 16, 2009 9:16am Apr 16, 2009 9:16am
Quoting smjones
While his EA may be successful, it could be even more successful using proper trade orders. I have an EA that uses proper trade orders and switches from the different types ( Modified Parrondo's Paradox). It is the only journal I ever posted here. It is very very successful and instead of buying and selling at the same time, it uses lot size modifications.
His EA doesnt open Buy and Sell at the same time. It waits for a certain market condition to be met before entering the opposite trade.
  • #75
  • Apr 16, 2009 9:21am Apr 16, 2009 9:21am
No real market offers this. Not in stocks, futures or options or what have you. Its just a gimmick of some low profile fx shops. Every major exchange outlaws this explicitly, and for good reason (google for 'cross trade').

If you buy one and then sell one, you are flat. Its just how a market works.
  • #76
  • Apr 16, 2009 9:24am Apr 16, 2009 9:24am
Quoting shrike
No real market offers this. Not in stocks, futures or options or what have you. Its just a gimmick of some low profile fx shops. Every major exchange outlaws this explicitly, and for good reason (google for 'cross trade').

If you buy one and then sell one, you are flat. Its just how a market works.
Yes, but if you buy 3 and sell 2, then you are not flat.
  • #77
  • Apr 16, 2009 9:25am Apr 16, 2009 9:25am
Quoting tokyomaster
Yes, but if you buy 3 and sell 2, then you are not flat.
Then you are long 1 - whats your point?
  • #78
  • Apr 16, 2009 9:26am Apr 16, 2009 9:26am
Quoting tokyomaster
Yes, but if you buy 3 and sell 2, then you are not flat.
No shit, you are long 1 and you only have 1 position. If you were so called, hedged, you would have 5 positions. but to shrikes point you really only have 1 position.
  • #79
  • Apr 16, 2009 9:37am Apr 16, 2009 9:37am
Quoting fxtrader42
No shit, you are long 1 and you only have 1 position. If you were so called, hedged, you would have 5 positions. but to shrikes point you really only have 1 position.
My point is that some EA's will constantly hedge a pair, buying and selling until a overall profit is achieved. Yes, you can just go long or short and let the trade ride but if you get the direction wrong then you have no position in the market. You dont buy/sell (same lots) at the same time. The process is to slowly reduce overall risk. And no, its not the same as grid/martingale systems, which this site is full of.
  • #80
  • Apr 16, 2009 9:48am Apr 16, 2009 9:48am
Quoting smjones
LOL, How are you paying more, by not hedging, you are in fact paying half as much. The only agenda I see is ignorance of market structure. I agree with you on one point though, I think if a "trader" wants to deliberately pay twice as much for the same trade and they are informed of this, let them. It is their money. So I think we have common ground on that.

But to say this prevents profitability, I cannot agree with. If a person uses trade orders correctly, it increases profitabilty by not over paying for the same trade.
Yes, you are right. There is extra cost for simplicity (depending on the modus operandi. For others there may be extra complexity). If I had enough time, I would ban "hedging" from my own EA. It will take months to recode and the logic is more complex. Maybe I do it slowly.

But the spread cost of buying + stopping out + selling + taking profit or the cost of buying + "hedging" + taking profit one + taking profit two in an up and down swing of the market is the same if you get the same prices. Double swap? OK. Double spreads? No.
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