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is hedging in the U.S. illegal

Bob LLewellyn (ForexAssistant)
Aug 29 2014 at 16:01
465 posts
A true hedge is one within the same asset class and in fact the same asset. Let's say I took a sell for the eur/usd earlier this month for one lot when the price was above 1.3600. The price has dropped to 1.3145. Now I think it looks like a recovery is coming up and the price will go back up for some amount before it turn lower again. I don't want to close my profitable trade as it is pretty safe now so instead I open a counter trade, a buy for one lot of the eur/usd. Now my profits are frozen in place as the price continues to go up. But at some point, it returns to its downward trek so we close out of the hedge trade and just treat it like any separate trade. This way you get both the profits and security of the hedge.

Naturally if this works for locking in profits, this concept can (and has) been developed as a trading style on the forex market itself. The problem with using different asset classes is that it is less likely to hold the hedge than one in the same class, and the investor would have to become proficient in two different markets simultaneously. That is tough enough on one market alone, I would not like to have to double my efforts to be good on two.

Given the inherent safety of the forex market, I would still have to argue the best move is offshore (out of US) then you are free to employ whatever kind of investing assets and style that you like.


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