Is it legal to hedge in another account?

[sakhter]

Quote from BulldogFX:

Going long and short on the same pair at the same time in the same account in FX is technically not "hedging" but it's called hedging anyway.

The NFA banned it mainly because it allows for the possibility of churning.

They kind of threw the baby out with the bath water imho in that "hedging" can be used as an effective money management technique that protects customers from losing money every bit as much as the new FIFO rule protects customers against possible brokerage and acct. manager churning.

Maybe this is simplistic but here's how I see it...

Let's say I'm short EURUSD 1 mini at 1.4000 and the market moves against me. I decide to go short or "dollar-cost-average" in another 1 mini every 25 pips the market moves up.

At 1.4150 I have 6 minis on I'm 150 pips away from my initial entry. I've had enough.

I go long my total volume of 6 minis at 1.4150 and "hedge" my short position losses. No matter how far the market goes up from this point my open loss remains the same (except for interest and extra commissions add-ons).

When/if the market retraces down and starts to cooperate with my initial positions, I release the "hedge" (hopefully at a small gain, loss, or even) and I am now free to hopefully cash in on the 6 short positions as price continues to move down.

NFA have taken this MM technique away.

FXCM-UK and Gain Capital- UK accounts are still "hedging" capable. It's only NFA registered US brokerages who have been forced to disallow the practice.

your a joke. Stick to your day job of being a IB for FXCM and GAIN.

leave the trading to the pros

 

[cabletrader]

Quote from BulldogFX:


Maybe the question is... when grid trading, is the additional risk inherent in putting on and releasing a seemingly worthless "hedge," worth the cost and exposure of buying time?

Long and short as part of a trading strategy you mean? Perhaps, although I haven't seen many long-term profitable grid trading strategies (not that I'm likely to see one published around the net of course!).

Hedging used in a strategy you may be right, but as some sort of loss control or money management I would have to say forget it in my opinion.

 

[TraderZones]

Quote from BulldogFX:

I could continue to be wrong... and all you say is true, TraderZone too... but I was thinking of "grid" traders who's trading plan is simply betting and waiting on a "regression to the mean."

Couldn't this type of hedging be of service to them?

Thinking out loud here... still an illusion, yes, still exposed to risk, yes, increases risk actually... but if the stance on the direction taken is an absolute commitment to mean regression isn't the purpose to buy time? Time with no risk to margin? Hmm.

Tie up capital and margin, yes, still locking in loss, yes, still paying additional spread, yes, still not mathematically different from adjusting position size, yes, still smoke and mirrors, yes, except maybe for the buying time part.

Maybe the question is... when grid trading, is the additional risk inherent in putting on and releasing a seemingly worthless "hedge," worth the cost and exposure of buying time?

Maybe not. I'll leave it to the pros.

hedging the same instrument is mathematically the same as just increasing/decreasing your positions in one account, as normal. And if you have to act on something to "hedge" then you can just as easily adjust your one account in the other direction.

It is a belief and practice of newbies, not a hedging/trading strategy. Hedging is something like "Southwest obtains fuel contracts to lock in their price of fuel." Or "Investor X shorts the ES emini to hedge their portfolio of carefully selected stocks, to insure against catastrophic market collapse for a period of time." Or a car maker manufactures cars in several of their target markets, to protect (hedge) against catastrophic faliure of a currency in one of their markets (such as the Asian currency crisis 10 or so years ago, when currencies fell more than half)

 

[sakhter]

Quote from BulldogFX:

I could continue to be wrong... and all you say is true, TraderZone too... but I was thinking of "grid" traders who's trading plan is simply betting and waiting on a "regression to the mean."

Couldn't this type of hedging be of service to them?

Thinking out loud here... still an illusion, yes, still exposed to risk, yes, increases risk actually... but if the stance on the direction taken is an absolute commitment to mean regression isn't the purpose to buy time? Time with no risk to margin? Hmm.

Tie up capital and margin, yes, still locking in loss, yes, still paying additional spread, yes, still not mathematically different from adjusting position size, yes, still smoke and mirrors, yes, except maybe for the buying time part.

Maybe the question is... when grid trading, is the additional risk inherent in putting on and releasing a seemingly worthless "hedge," worth the cost and exposure of buying time?

Maybe not. I'll leave it to the pros.

With any trading strategy you are 'betting and waiting." If you are a trend trader your waiting for a exit signal, if you are scalping, your looking at the <5 minute exit timer.

The only difference between trend traders, scalpers & GRID TRADERS (martingalers) are they don't have shit-loads of trades open to "buy time." They are trying to square positions as fast as possible.

I am sure you can end up profitable with hedged trades, extra spread, extra roll at the benefit of protecting margin... betting on "regression to the mean"-- if you are comfortable with placing 10-20 trades to get same profit as 1 trade & you are comfortable with the opportunity/time cost. Be my guest. Fuel that fire!