NFA Anti Hedging Rules

Currently forex trader can have two opposite directional trades open at the same time on a single currency pair So say if you are trading GBP/USD currency pair, you can have short as well as a long trade opened at the same time, which is what is called hedging.

According to the new NFA Anti Hedging rules, startin at May 15, 2009, all traders who use such forex trading practices, will now have to come up with different trading strategies and they have to Say goodbye to their Hedging strategies. This is a clear concrete step by NFA to make the forex industry more mature and keep the exponential growth under check.

The basic information at this point is that ALL trades will be required to be executed on a “first-in, first-out” basis. Meaning clients can not manage positions on a per ticket basis. Example: client buys 1 lot GBP/USD, then buys a second lot of GBP/USD. If the client for whatever reason wishes to close out second lot (it’s profitable while the first one is not), it will NOT be possible. First lot must be closed out first.

Traders do Hedging mostly to judge the direction of the market. Though a hedged open long and short trade on a single currency pair will offset the gain of one position against the other, but when the direction of market trend becomes clear, traders close the losing trade and keep the winning one going. It is a cruel way to trade.