Well the broker won't let you open a trade. Even if you did you may incur additional margin for opening an opposing position. Besides, even if you did try it is entirely the fault of the broker for letting you do that, the CFTC can't go after clients but only after the broker. So the broker has to answer for all your actions, hence the reason why the broker may disable or incur additional margin when opening a hedge.
IBFX and FXDD has developed a way to accommodate for FIFO and hedging which they call a back office solution. It doesn't work for every type of fifo/hedging problem but I understand that it does work for some trading systems.
The better solution is to open an offshore IBC (International Business Corporation) and use it to open your trading accounts. It is perfectly legal to open an IBC no matter what your citizenship. And the IBC has to abide by the rules for the country in which you opened it in. I can recommend Belize and Panama because they have laws to protect the business from prying eyes.
The cost is somewhere around $1500 to open and ? $600 a year to keep it open. The other solution is to not be here. That is my choice, I do not do well with Nazi's and that is the direction of the USA. OK for some, maybe, but I'm out of here as soon as it can be arranged. As the saying goes, protect you ass first and assets second.
Anyway, like LastPipOnEarth said, the US brokers are regulated, you need to go off shore. It actually pays for itself because you can get margins at 400:1 off shore but in the US, the best your going to do is 50:1 and there is talk that they might take it down to 25:1. The US government is not your friend, if you can, it pays big time to go off shore.
Different kind of hedging. The US rule change only effects US forex brokers, not big companies, they're the ones who make these new rules to lock out competition. Haven't you heard, the US government is the best government money can buy.
Well, yes but brokers outside of the US won't accept US customers because they are afraid of persecution from the US government, I can't say I blame them. The best solution for US traders is to open an offshore business while they still can do that much. Anyway, if you want to be able to use a hedge, you need to go off shore.
adrian8891 posted: If hedging would be illegal in US, then most of investment funds won't make profit ;)
Hmmm... this refers to hedging that typically involves the same asset class. But sophisticated traders don't hedge that way. They use different asset classes that are not correlated positively but can help lessen their losses when their main trading goes into a loss and their hedge goes into profit. If their trading plan goes into profit and there hedge goes into a loss, it is typically smaller. The net effect is that the trader still comes out with a net profit position.
I am not familiar with currency futures and options but some do trade these asset classes along with spot fx in order to hedge their positions.
There are various ways to hedge - my take is options and derivatives probably offer the best hedging for FX, but most are not available to retail investors, even less on regular FX platforms. I have heard of semi-institutional platforms where along with FX you can trade stocks and bonds, and there you can customize your FX hedging with options but on such platforms each trade has to be around USD10k before any leverage. Anybody seen any good FX platforms with hedging options out there?
Chris Sayman, what kind of hedge do you mean? Just opening the opposite position in the currency pair you are trading?
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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