FIFO & hedging US rules. -LIKE or HATE?

[mandilon]

I'm planning on getting 'offshore' residence to trade 4X.

Don't like this STUPID US rules.

Reminds me of when Texans couldn't borrow money on their home equity.

Stupid state finally 'saw the light.'

What percentage of 4X traders are planning to do the same, -eventually?

THX much for your input.

 

[Jack_Larkin]

I trade with ~20-30:1 leverage max.. I dislike hedging and couldn't care less about FIFO since the exposure difference is all the same.

So I would actually be quite fine with the restrictions if it meant I could be with well regulated broker.

 

[the hare]

If people want to f*ck themselves over with high leverage, and "hedging" then they should be allowed too.

Its the closest thing we have to a stupidity tax, and it should be encouraged.

 

[scose-no-doubt]

Reminds me of when Texans couldn't borrow money on their home equity.

Stupid state finally 'saw the light.'

Really? Sounds quite unreasonable so it's a good idea they changed their minds. Incidentally, have you seen a US house price index chart for the last 10 years?

 

[gpcode]

These rules have caused a lot of damage...

Don't like this STUPID US rules.

Reminds me of when Texans couldn't borrow money on their home equity.

Stupid state finally 'saw the light.'

What percentage of 4X traders are planning to do the same, -eventually?

THX much for your input.[/QUOTE]

I'm with you mandilon, and under the guise of 'protection', the rules of the US retail-level spot ForEx market in my view seem to be becoming more hostile and onerous to the trader with each phase-in. FIFO rules, for example, at least had been handled in the back office of the brokerages but this is now disallowed- forcing the trader to work around new risks, confusion and additional complexity with order management for multiple open orders of a same currency pair- who would actually want this 'protection' ?

NFA rule 2.43(b) bans offsetting and established FIFO restrictions and this one rule seems to have caused the most damage. Offsetting (commonly referred to as 'hedging') can be a remarkably powerful tool that can be started, stopped and used partially or fully in combination with other strategies, with all calculations contained in a single account for the benefit of the trader for strategy testing, grid and other trading methods, preserving margin, and recovering from bad trades. The broker would be doing this at my direction, and it wouldn't bother me at all to pay extra if needed for the use of better tools such as offsetting.

The FIFO restrictions interfere with just about everything involving multiple open orders of the same currency pair, for example with trailing stops on later orders which can cause all orders to close- including orders opened in earlier sequence to close at a loss at least on MT4, the platform most of the world uses..
Exposure with and without FIFO rules may be the same, but being able to freely close any order when it is profitable would be an advantage over being forced to close orders in FIFO sequence, when orders first opened might be at a loss but later ones are profitable and margin might be becoming uncomfortably low.

In 2009, an instructor guru published an article to sway traders to skip the hedging and grid trading systems and seemed determined to turn opinion against the use of these concepts, as well as suggesting that those who use them might not even be aware that they would be paying the cost to open the offset orders- this got my attention as I was able to use these concepts successfully and found the latter an odd point to suggest, considering that the trader is directing the broker to open each of these trades. It is curious that the NFA 2.43(b) ban ended up prohibiting offsetting, and grid trading to an overwhelming degree has been disabled in the US ForEx market. At this point, it seems better to direct my attention and money away from gurus such as this who create or reinforce opposition against the use of these tools that I have been able to productively manage my account with.

The same goes for brokerages- the European division of a brokerage starting with the letter 'O' and ending with the letter 'A' is on record with trying to push regulators there toward a 1:50 leverage cap in that market, and I applaud those regulators for rejecting this interference, but find it interesting that we ended up at that ratio in the US. Their Australian division is now represented on a commission and I anticipate the same attempt being made there as well. Grids in particular generally thrive at higher leverage, and can be quite profitable when used wisely, as with any other method- if that is disallowed now for others, is it because they ‘deserve it’ or elites simply ‘know better?’

No evidence has ever been presented to me that the class of traders at the retail-level contributed to an economic collapse of any kind. Accounts are typically structured with high leverage for small balances for clients who need it the most, but the ratio offered then typically is scaled back in steps with larger balances.

I'm perfectly happy to trust the regulatory bodies of other nations and don't at all buy into the US prohibitions being some kind of necessary trade-off for having well-regulated brokers. Foreign traders don't seem to be calling for these restrictions to be imposed on themselves. These restrictions caused an exodus of brokerages and clients to leave the US markets and US residents who started trading through foreign brokers were then banned from doing that as well. It seems unlikely that brokerages or foreign clients who do not wish to trade under these prohibitions will return here- didn't anyone see this coming?

Most of the world still enjoys the freedom to use offsets, grids as well as higher than 1:50 leverage, but here in the US there seems to be a certain amount of hostility toward the use of these concepts, with some implying ignorance on the part of anyone who would wish to use these ideas, and at times expressing schadenfreude, or an OWS mentality with a desire to punish those in the biz. I am not seeing those calling for simply restoring what has been prohibited attempting to take freedoms away from anyone.

It seems unreasonable to have to uproot one's family to be able to trade the way that had done successfully in the past before the restrictions. Word has it that there actually are some foreign brokers still willing to trade with US clients, but the advice I’ve seen is to explore these on review sites or some other indirect way without visiting the website of the brokerage, because your account application will require you to answer how you learned about the brokerage, and visiting the website is said to be regarded as a solicitation by the brokerage, even though you are the one who is seeking the information- this would be an example of how ludicrous our regulations have become. Contacting the brokerage via email without mentioning the website to send you the information may be the way to shield yourself from what looks like becoming entrapped in a process crime if you answer wrong. Apparently the broker, not you, can mention the website once you have initiated a request for information and after that point are free to explore the website and other information. As with anything, it is best to confirm this would be true.

I am hoping the 2014 mid-term elections will bring reform to these counterproductive regulations. Stay tuned.

 

[bredin]

1. FIFO makes no difference, mathematically speaking, to trading results.

2. Disallowing hedging makes no difference, mathematically speaking, to trading results.

3. Reduction of max leverage to 50:1 doesnt stop idiots overleveraging and killing their accounts.

4. Intl. brokers said no to american clients because they were made to report activities of american clients to the american authorities, representing an increase in overheads for a portion of their clientele.

If you want to fix all of these all you need is a friend who lives outside of the US.

B. (simple workarounds are available to those who can think).

 

[gpcode]

Hi bredin,

Your advice to try to get help from a friend outside the US could be the best way for trading without these restrictions, so thanks. Since I started trading professionally though it is also true that for the systems that have been impacted by these rules, in actual practice the difference can be profound, and the power and safety that offsetting allows with tools, margin and computing power to be condensed in a single account can provide distinct advantages for the trader, just with strategy testing for example, over trying to work around these otherwise, where an alternative often simply becomes unstable or unworkable- it is also true that the rest of the world doesn't seem to be in a hurry to buy into these prohibitions and if anything it looks likely that at least a partial repeal will happen in the US at some point. Risk management is important whatever the leverage is used, and leverage is a tool to be respected like anything else, yet many use high amounts successfully. FIFO can expose the trader to new risks and interfere with account management for open orders on the same currency pair- for example with a trailing stop accidentally placed on a later order forcing closure of all earlier orders at a loss or being unable to close later orders individually when profitable or preserving margin when trying to do close a bad trade out of FIFO sequence. MT4 may have a limitation with not being able to close unequal lot sizes out of FIFO sequence, but it didn't exist before these new rules. Unfortunately US residents are not only present an overhead issue but a fairly severe penalty risk not only for trading accounts but simply for foreign bank account holders, so just avoiding us often seems better. In any case, I'm not calling for others to be forced to trade my way, so I'm just asking for some respect to continue trading again in ways proven to work for me

 

[gpcode]

Hi bredin,

Thank you for your observations, and I wish it were that simple for me to apply them- I assume that you trade for a living like I do and while trading through friend outside the US might work for some willing to allow control of one's account this way, I honestly don't see it and It seems like a lot of hassle with maybe becoming a test case for anything that even looks like some form of evasion, even for those willing to ignore all the surveillance that's going on.

Those of us who use the systems that have been impacted by these rules are quite aware of what has been taken away, and the difference mathematically in actual practice can be profound. The power and safety that offsetting allows with tools, margin and computing power to be condensed in a single account can provide distinct advantages for the trader- with strategy testing or surviving violent spikes while others are having their stops run or blown for example- over trying to work around these otherwise, where an alternative often simply becomes unstable or unworkable. It is also true that the rest of the world doesn't seem to be in a hurry to buy into these prohibitions and if anything it looks likely that at least a partial repeal will happen in the US at some point.

Risk management is important whatever the leverage is used, and I agree that lowering it still doesn't stop people from mismanaging their accounts. FIFO though can expose the trader to new risks and interfere with account management for open orders on the same currency pair- for example with a trailing stop accidentally placed on a later order forcing closure of all earlier orders at a loss or being unable to close later orders individually when profitable or preserving margin when trying to do close a bad trade out of FIFO sequence. MT4 may have a limitation with not being able to close unequal lot sizes out of FIFO sequence, but it didn't exist before these new rules. The point for me is that these burdens have caused new consequences to be been dumped onto relatively small, retail-level clients to their detriment- who didn't cause any financial crisis in the US and are now prohibited from trading their own money with brokers with greater freedoms in foreign markets.

Unfortunately US residents are not only present an overhead issue but a fairly severe penalty risk not only for trading accounts but simply for foreign bank account holders, so we've become too toxic for many to deal with. In any case, I'm not calling for others to be forced to trade my way, I'm just asking for some respect to continue trading again in ways proven to work for me[/QUOTE]

 

[bredin]

Heres how I would do it, if I needed to.

1. Your Foreign friend sets up a business (LLC) in their country.

2. You become the CFO of said company.

3. the business bank acct is set up needing multiple signatures.

4. You *LOAN* the initial capital to the company.

NB. you are NOT a shareholder and dont have to do any paperwork re: US

5. Said company starts a trading account with your capital

6. You trade the account

7. You get your money (with a stipend to your friend for being so helpful) as "interest" payments

interest is a before tax expense as far as the company is concerned so it should only get taxed as you receive it.
Make sure theres something in this for your friend. This is very important.

8. protect your capital via private contract (and the fact that two sigs are needed to move it about)

B. (Hypothetically speaking, of course)