Has the NFA ever proposed restrictions on leverage, averaging in or martingaling? Where could you go to read up on what their next move might be?
- #103
- Apr 19, 2009 9:03am Apr 19, 2009 9:03am
- Joined Oct 2008 | Status: Sentiment and Global Macro | 2,321 Posts
- #112
- Apr 20, 2009 5:46am Apr 20, 2009 5:46am
Jairo ... I definitely do have respect for someone who takes ACTION, and doesn't just talk about it. If everyone who felt the way you do, did the same it might actually make a difference.
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- #120
- Edited May 8, 2009 3:38am May 7, 2009 3:34pm | Edited May 8, 2009 3:38am
- Joined Sep 2006 | Status: ... | 8,113 Posts
Actually, that's not entirely true. You can make the same number of pips, but keep in mind that position sizes typically change between trades. That makes the swap issue a lot harder to figure out, in some cases you'd end up paying more, in others, less. If you're holding 2 exactly opposing orders (why?!) then your swap would be zero too.
In all situations (at least the ones I can think of), your spread actually ends up the same. You may have more "pips" of spread if you have to take balancing trades, but in that situation the balancing trade...
Re the spread and swap: My experience is the same as Merlin's (here), i.e. that brokers tend to charge more swap than they pay out, hence the trader saves money by being out of the market altogether, as opposed to being net flat with offsetting positions. In the linked post, there's a simple example as to how hedging can be easily replicated (and also here), and (in Merlin's post) how being hedged can result in additional spreads. To summarize, the trader can never be better off, cost-wise, by being hedged; and there will be situations where he is worse off.
Many of the hedgers who believe they're being screwed by the NFA ruling seem to think like Jairo. In his example (see my previous post - #118) he wants to be able to close out his winning trade first, and then wait for the losing trade recover to profit, so that both trades make profit. But, as I pointed out, -25 pips on one trade plus +100 (1 win, 1 loss) on the other delivers exactly the same bottom line as +60 and +15 (2 wins). In other words, the hedgers tend to focus on the result of each individual trade, rather than their overall P/L. Many also seem to make the assumption that every trade, if left in the market long enough, will eventually make a profit (a similar argument to those who believe in trading without stoplosses), and that a loss is not a loss until a trade is closed (i.e. they fail to take unrealized P/L into consideration).
IMO these views are a total illusion. Everything else being equal, price has an approximately equal probability of rising or falling at any given point. So unless one's analysis tips the balance as to which way price will henceforth move (on balance of probability), there is no advantage in keeping the second (previously offestting) position open. The loss is just as likely to grow larger as it is to 'turn around'. And unrealized losses have to be realized at some point...... especially if they grow to the point that the account receives a margin call, LOL. The trader can only ever withdraw, or otherwise utilize, the net equity in his account.
I concede that the ability to place hedged orders (entry, TP, SL), and then walk away, is more convenient than having to monitor the market and adjust one's position accordingly. But all of this could easily be automated by writing a simple EA (I guess that's the programmer in me speaking.
)Hence, on this basis, I see absolutely no benefit, at least $$$-wise, in being hedged (in the same pair). One is simply incurring unncessary costs, for the privilege of convenience.