NFA Hedging restrictions, May 15th

[G3flyer]

As some of you may or may not know, there is a new ruling coming down the pipes from the National Futures Association (NFA). This ruling (2-43(b)) will prohibit Forex traders placing hedge positions on their trades. There are pros & cons to hedging and there may be many opinions on this particular trading strategy. But that's not the point and not why I started this thread. The point is that it appears as though the U.S. brokers, and sanctioned by the government, have gotten together to take away a method of trading that can potentially offset losses or give traders a better chance of winning in the market. Hedging has been going on since man started walking upright. For some it works; for some it doesn't. But at least you have the option and I don't see anything illegal about.

I'm interested in hearing how all you guys feel about this ruling. Please spare us all from the why "You should/should not hedge...Blah, Blah, Blah"; that's for another thread. I'm only looking for your opinions and why you think the brokers colluded to do this. I personally hedge sometimes and, personally, this has ****ed me off to the Nth degree. Here's the full read if you are interested

http://www.nfa.futures.org/news/PDF/CFTC/CR2_43_ForexPriceAdj_112408.pdf

And for any of you brokers out there who happen to be reading this, just know that some people are going to find other ways to circumvent you. I would bet that if people started closing their accounts, en masse, as a protest, you guys would quickly "change your minds". This is the reply I got from one foreign broker who shall remain nameless:

"You are right the NFA rule changes have shown us an increase in enquiries from the States. Unfortunately we can't capitalise because we can't deal with you guys.

I don't really know why the NFA made the change, I'm sure their reasons were well considered. If clients wish to hedge then let them hedge, we're not expecting such regulation here in (city withheld) but then one never really knows for sure."

Go ahead and chime in guys; I'm all ears!

 

[Pharaoh]

I've been contacting a number of brokers about this to try to get more info on the subject. So far, they don't seem to be 100% sure what will happen if I try to open a hedged position in MT4.

When I get a little more info, I'll be posting it.

 

[Nancy Cheah]

As I'm a brand new inexperienced forex trader, I've just opened my first ever forex trading real account with Saxo Bank situated in Singapore.

I, too, noticed that I can't open any whatsoever hedging positions in their forex trading platform.

When the market is in range trading mode, hedging is actually the best way to secure some excellent profits but I guess those many forex trading brokers out there can't tolerate giving free money to their respective clients so thus the ban.

The National Futures Association (NFA) is doing nobody any good whatsoever by initiating this policy except for protecting those many forex trading brokers.

I don't see this as a win-win situation but rather a broker-win-client-lose scenario.

Well, how to we circumnavigate it?

My answer's pretty simple.

A directional trade is still the best call.

Anymore input, people?

 

[Jaack]

The National Futures Association (NFA) has recently instated a new Compliance Rule 2-43, which is applicable to all Forex Dealer Members (FDMs). As a registered FDM, Alpari (US) will be in accordance with the new Compliance Rule 2-43, stating the following:

Beginning May 15, 2009, the NFA will prohibit FDMs from allowing clients to open hedged positions. This means that traders will not be able to open opposite positions of the same currency pair in the same account. This will only effect positions established after May 15, 2009. Offsetting positions that were established prior to May 15, 2009 will not be liquidated, but once either position is closed out after May 15, 2009, it may not be re-established as a hedge.

I'm new to Forex also and this is just a Demo account. I was surprised about the hedging as I have not yet figured out how to hedge with MT4, and I've left a lot of play money on the table.

Anyways back to the topic.

Apparently according to Alpari's synopsis of the rule, you just need a separate account to implement hedging. I don't have any idea if you can open two accounts with one broker or if you have to use a separate broker.

 

[Pharaoh]

As I'm a brand new inexperienced forex trader, I've just opened my first ever forex trading real account with Saxo Bank situated in Singapore.

I, too, noticed that I can't open any whatsoever hedging positions in their forex trading platform.

Even before the NFA jumped in on this, not all brokers permitted hedging.

You can read my take on the situation here:

https://www.forexpeacearmy.com/forex-forum/forex-articles/4587-new-nfa-rules-what-they-mean-you.html

 

[StxyLo]

Hey guys!
Check this out:

"Notice I-09-12
May 05, 2009
Revised Effective Date for Portions of NFA Compliance Rule 2-43(b)

Notice I-09-10, issued on April 13, 2009, stated that new NFA Compliance Rule 2-43(b) would be effective for any positions established after May 15, 2009. Rule 2-43(b) prohibits Forex Dealer Members (FDMs) from carrying offsetting positions in a customer account and requires that they be offset on a first-in, first-out (FIFO) basis.

NFA has received several requests to extend the effective date due to the complexity of the programming changes required to comply with the FIFO requirement. After considering those requests, NFA has decided to extend the effective date for the FIFO part of the rule until July 31, 2009. Therefore, FDMs may not carry offsetting positions in the same account if either of those positions was established after May 15, 2009, but FDMs may offset positions on some basis other than FIFO through July 31, 2009."

Any comments?

 

[Nancy Cheah]

Thanks a lot.

But I still find it difficult to understand why all these stuffs surfaced lately.

Anyone care to define please?

 

[jforster]

Dummy hedge

I wonder whether creating a neutral hedge (e.g. of 0.01 lots) in either direction on a currency pair prior to May 15th would fool a broker's system so that it wouldn't know what trade to close in order to appropriately enforce a FIFO system on that pair.

That approach might buy an extra 2.5 months of hedging at the cost of a few pips.

Any thoughts on this idea?

 

[Nancy Cheah]

I really don't think so.

How can lay people like you and I outsmart them?

 

[nisse]

Hedge with 2 account not that good.

I'm new to Forex also and this is just a Demo account. I was surprised about the hedging as I have not yet figured out how to hedge with MT4, and I've left a lot of play money on the table.

Anyways back to the topic.

Apparently according to Alpari's synopsis of the rule, you just need a separate account to implement hedging. I don't have any idea if you can open two accounts with one broker or if you have to use a separate broker.

I too have read about the 2 account ideas, it was even done official by FXSol the other day but I lose the link, sorry. I have Swiss broker ACM so hedging is not a problem for me, but I still thinking about it and I believe that the problem would be Margin Management, my theory is as follow;

In a fully hedge position margin is not really issue (since the positions offset)... but if your holding two separate positions then one could be margined out.....so not really a perfect hedge....and i would think it would trader up hedges on position under stress...increasing the likelihood of getting margined out one side....Also there is leverage subject to consider. If you have 100/1 leverage you are actually using 200 to 1 leverage instead of 100/1 on 1 platform so the risk is greater as you may over leverage and as get marged on 1 account , where as if you have only 1 platform and are perfectly hedged you cannot get marged...then is the question of if you take your equity and divide...it increase the probability you will get margined out.....

What do you think?