US Forex Brokers Allowing Hedging
In 2009, the NFA (National Futures Association) implemented a set of rules that essentially ban the use of forex hedging strategy in the United States. This rule is to be carried out by brokers which later disable the opening of two opposite positions for the same currency pair at the same time. The reasons are that hedging increases the customer's financial costs and generates significant potential for abuse.
In order to make hedging possible, the US forex traders are advised to get around the restriction by opening two accounts in the same broker or different ones, then open a short position in a currency pair on one of the accounts and long it on the other.
If you're not a US resident or a trader living in the USA but still want to trade in a broker from that country, you can choose one that has a global offering and open an account on their website that is specifically provided for global clients. You can expect such service from the brokers below.
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How is hedging policy outside of the United States?
Hedging practices are mostly legal in other countries, including in the EU, Asia, and Australia. That doesn't necessarily mean that there's no regulation about it, though.
In the EU, there's a policy about "variation margins" that applies to any bank, company, and fund that uses currency forwards and other derivatives to hedge. The policy was implemented in January 2018 and didn't get a lot of support from the market participants. Many traders argue that this rule will limit their access to market opportunities and make European cities less attractive as currency-trading hubs.
Continue Reading at Why Is Hedging Not Allowed in Some Countries?
Which bonuses allow the use of hedging strategies?
FBS $50 No Deposit Bonus, AGEA $5 No Deposit Bonus, FXOpen $10 No Deposit Bonus.
Continue Reading at Forex Brokers with No Deposit Bonus
Direct hedging involves opening an order that buys one currency pair, such as GBP/USD, while simultaneously placing another trade to sell the same pair. This means that if the market goes against your first trade, you can still make money from the second trade without having to close the first one.
However, it's worth mentioning that some brokers don't allow traders to take direct hedging in the same account.
Continue Reading at Why Is Hedging Not Allowed in Some Countries?
How to do forex hedging with different currency pairs?
Consider hedging between currency pairs famous for being negatively correlated, like the GBP/USD and USD/CHF, or between pairs famous for having a highly positive correlation, such as GBP/USD and EUR/USD. Remember that if you hedge in positively correlated pairs, you should open two different positions (long and short). But if you hedge using negatively correlated pairs, you should open two positions in the same direction (long and long or short and short).
For example, USD/JPY and AUD/USD have a -86.6 correlation; that means you can hedge the USD/JPY position by using AUD/USD or vice versa. In the USD/JPY case before, instead of opening another position on the same pair when USD/JPY goes up, you could opt to hedge with AUD/USD.
Continue Reading at Introduction to Forex Hedging Strategy
