Does c2 allow hedging in forex?
Before I get abused, I am well aware that hedging is effectively a neutral position and understand all the arguments against hedging.
However hedging can minimise account drawdowns, for example, trading multiple independant strategies within the same account.
Yes, closing out positions will effectively hedge but this is an overhead in terms of managing trades and transactions costs.
I don’t understand the c2 limitation. Unless there is a USA law that prevents hedging in forex, c2 should allow hedging even if it is considered redundant (neutral) rather than enforce a specific trading rule which is in the domain of system developers.
I would appreciate an explanation of this c2 limitation from the site adminstrator.
why should we want to hedge ?
this is speculation …
when you think hedging is a reasonable thing, then that very same
investment hould also be included in your strategy
as a normal trade, independent of the hedging effect
c2 does not allow forex hedging to include in a system strategy otherwise I would not have written this post.
Anyway I’m not interested in the merits of hedging (ie whether its speculation/neutral etc and I revealed one advantage of hedging in the original post) but rather I would appreciate an explanation on why c2 does not allow forex hedging.
trading anything should be "allowed" , of course (IMO).
How would C2 even detect whether something qualifies as hedging
Nothing prevents hedging in forex. Despite the fact it’s totally redundant if that’s really what you want to achieve it’s perfectly possible, just not in the same account, just like in real life. Have a C2 account for the main position, and another one for the hedges and make your subscribers subscribe to both.
The National Futures Association has banned hedging (entering offsetting positions at the same time) in all FOREX accounts in the United States. The new law took effect in May 2009.
http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=2273
BUT doesn’t C2 have an international market? - and those clients can hedge in their accounts no problem. Also as a plus it would be sweet if C2 could trade the NET position in accounts so ANY trader could trade that margin reduced position if desired even if they can hedge.
Why isnt C2 just a conduit for ANY trading system?
Hello Jarvis, you wrote : "BUT doesn’t C2 have an international market?"
Yes, but Matthew and his crew still have to comply with US regulations, I guess.
what sort of "hedging" is that ?
Brokers use it to manipulate prices ?
In this particular topic hedging is the practice of opening a long AND a short position on the same currency pair at the same time.
By law, a trader can no longer do that if his/her Forex broker is doing business in the USA.
A few months ago american FXCM customers could transfer their US forex accounts to FXCM in the UK to avoid this new law but the NFA quickly took over and prevented US forex traders from transferring their accounts elsewhere in the world so FXCM has to re-transfer their accounts from the UK back to the US.
why would traders do that sort of "hedging" ?
An emotional crutch, nothing else.
I am not condoning this practise, and I am already aware it is redundant but I do know of people who used to do this for the following reason.
Imagine you have been long EUR/USD for some time and it is showing a healthy profit. You fear it is vulnerable to a sell-off but believe it remains a valid position longer-term. So in a separate account you ‘hedge’ the position by shorting EUR/USD. You are now long in one account, short in the other. You are delta neutral. If and when you feel the risk to your longer-term position has subsided you cover the short position and remain long.
Put simply, it is just easier for some people to deal with the position that way than selling it and then having to get back in, which most people would appreciate can be hard to do sometimes. But it also suggests their method isn’t robust enough to withstand such temptations and anxieties potentially sabotaging what they believe to be a good longer-term position.
Again, I am not condoning this, but I know of people who do it for that reason and I can kind of understand why they do. But there is no other reason to do it I can think of that makes any sense.
Hi Broadsword,
You wrote "So in a separate account you ‘hedge’ the position by shorting EUR/USD"
You don’t even need a separate forex account, a lot of forex brokers allow you to open a long and a short position on the same currency pair in the SAME forex trading account.
But not anymore, now with this new NFA law if you attempt to open an offsetting position (hedge) and for the same number of lots (at least in the US), the trading platform will simply treat this second position as an order to close your original position. This is done to comply with the FIFO (first in first out) regulation that this new law created.
