Hi guys, if you are not aware, there is a new ruling from The National Futures Association (NFA) which take effect on May 15, 2009. The ruling will address the practice of “hedging” in forex trading. Hedging is the action of holding both long and short positions at the same time for the same currency pair. Below is what the NFA has decided with the ruling.

[Offsetting Transactions

New Compliance Rule 2-43(b) requires an FDM to offset positions in a customer account on a first-in, first-out basis, thereby prohibiting a trading practice commonly referred to as "hedging." A customer may, however, direct the FDM to offset same-size transactions even if there are older transactions of a different size. Rule 2-43(b) is effective for any positions established after May 15, 2009. Offsetting positions that were established prior to the effective date do not have to be liquidated, but once either position is closed out after May 15, it may not be reestablished as a hedge.]
This is from the NFA notice on 13 April.

The above means that if you try to open long and short positions at the same time for the same currency pairs, those trades will become invalid because the forex brokers will offset those trades against each other, and therefore you are left with no trades open. Some of you might already known that some brokers like Oanda have always been practicing no ‘hedging’, so there is not much changes to those who are trading with them. But for those of you who have been using forex trading systems that needs hedging, then this might be a bad news because other brokers will follow suit of the ruling change.

One thing that most people are not aware of is that now CFTC has been given regulatory authority over forex trading and NFA is the industry organisation that the forex brokers in the U.S. belong to. This means that CFTC and NFA forex brokers are no longer unregulated in the U.S.

Last time I have always been curious and bias about how hedging works in the forex market and I never give forex trading tips related to hedging at all. So now this rule came alive, it does not affect me at all because I never use forex trading strategies that uses hedging. And I never believe in that because it’s complicated to me. My forex trading system is simple, easy to use and profitable. You only have to learn the rules, practice it and make it work in the real trading world. So what about you? Are you using hedging strategies all this while? If you are, then the ruling will really affect you and it’s time that you look for some other strategies to trade the forex. Let me know by inserting your comments at the end of this post on your views for hedging.

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