May 21, by Hugh Kimura. If you wish that you could implement Forex hedging with a US Forex broker and not have to follow the FIFO rule, then this post is for you.
There are ways to legally get around both of these restrictions, if you do a little advanced planning. Before I get started, please read this entire post, especially the forex at the end. These are advanced tactics and definitely not for beginners!
Even if you are an advanced trader, I would not recommend using these tactics unless you have a clear strategy that you have tested and you are comfortable with. Doing this know actually pretty simple and if you thought about it long enough, you probably would have come up with this on your own. But if you haven't, then keep reading because I will show you exactly how I do it.
If you still don't believe that this is possible, then I have also included a video demonstration. As you know, things may change over time and hedging may not work at a later date. So if you are interested in doing this, be sure to test it in a demo account before you use it in live trading.
If you are new to trading, let me explain these two concepts really quickly. Here are the informal definitions for each term:. Forex in the United States have to adhere to these rules, per US law. But if you are a more advanced trader and can handle these more complex trades, there is still something you can do about it. Hedging Forex trades is actually quite easy, just open two different accounts…one for longs and one for shorts.
The key to doing this safely is to remember which account is which. If the balance one account gets low and the other starts racking up profits, just transfer money between the accounts to balance them out. Make sure that your broker allows you to transfer money between accounts. I don't see why this would be a problem, want you never know. My broker is Oanda and by using their Java trading platform trading, I can open one account in one browser like Firefox and use another browser like Safari to open another about of the trading platform and have the other account open at the same time.
Because I need to keep all of the longs in one account and all of the short in the other account, having a different background color for each account helps me keep track and reduces order entry errors. Just like with hedging, we are still subject to certain rules, but if you know the workarounds, you can take advantage of them. The process does take a bit of advanced planning, but it works great. I don't mind so much that you cannot hedge, because I don't do it.
But I am really against the FIFO rule. To me, it does more harm than good. But that is almost irrelevant because I know how to get around it. The trick is to use different sized lots. The rules state that if a previously entered position is of a different size than later positions, it is not subject to the FIFO rules. Since Oanda allows nano lots which is awesome because it significantly reduces your risk, especially in small accountsyou can enter different lot sizes without it significantly impacting your risk.
For example, the smallest lot size most brokers allow you to enter are micro lots, which are 1, currency units. However, since Oanda allows nano lots 1 currency unityou can enter a second position at 1, units and a third position at 1, units. Because they hedging all different position sizes, you are allowed to exit the 1, know position and the 1, position before the 1, unit position. You just have to do some advanced planning when it comes to your order entry.
Break down your positions into unit sizes that want want to incrementally exit. So if you have a total position size of 10, units, you may want to exit at 1, unit lots, so you would have to enter 10 separate positions to allow for smaller exit sizes.
Keep in mind that if these are sell orders and you accidentally enter a buy order more that pair in that account, it will still subtract those units from the oldest open position. So in our example with the three positions, if you accidentally bought units, it would be subtracted from the 1, unit position, giving units after the mistake. There are some brokers and platforms for which the FIFO workaround doesn't work. In fact, there are probably a lot of brokers where it doesn't work. For example, when I looked at the proprietary FXCM trading platform, they blend trades together and they do not allow nano lots, so you could not use this method.
Even if they did allow nano lots, instead of having two positions of 1, units and 1, units like with Oandayou would have one position of 2, units at the average entry price.
So even if you did only want to exit the second 1, unit trade, you wouldn't be getting the entry price for more first order. The entry price would be the average of both positions. If you entered the first 1, unit short position at If the current price is now When we are forced to take off the oldest position first, there is no opportunity to take some profit off the table on the more recent trades and wait for the older position to become profitable.
Yes, it is true that blending and not blending positions is theoretically the same thing at the point in time when a partial position is closed out.
The bottom line is that if you want to do this, be sure to test out a demo account with a prospective broker first. There is no use in going through all the trouble to register and fund an account, only to find that your broker blends positions or does not allow different position sizes. Also keep in mind that your position size might not require nano lots.
Although I don't agree with the US laws on about and FIFO, they are designed to protect traders from themselves because hedging and managing multiple positions can get complicated real quick. They are advanced strategies and should only be implemented after you have a firm grasp of the basics and actually have a trading system.
So the bottom line is that just because you now know the workarounds, it doesn't mean that you should use them. Again, these methods may not work with all brokers. Always test your ideas in the lab and in a demo account first! Hi, I'm Hugh Kimura and my goal is to create a full-time income, trading Forex. If that is your goal too, then I invite you to join me on the journey. I will uncover what works and what doesn't Click here to follow me on Twitter.
All information is for education purposes only and is not know or trading advice. February 9, at 1: I agree, hedging is a very good practice to secure your trading.
But you need to be very carefully with it when you trade on the Forex market. February 12, at January 7, at 1: Why not use both pairs to hedge. Know it simple and stupid. January 7, at 2: This tutorial is meant to teach you the mechanics of getting around hedging and FIFO in a US account. It is not trading to teach you a trading system. December 5, at 9: Hi Hugh Great video. Is it legal or illegal?
December 16, at 2: I recommend contacting a reputable futures broker in your country and asking them. August 27, at August 25, at 7: Thanks for the comments.
IBFX does not allow slight changes just to avoid FIFO. Would love future brainstorming with you. Your presentation was great. August 26, at April 22, at 1: Hedging Hugh, More article. Funny About also use Hedging. Also want to thank you for the Bulletproof coffee article Great stuff. Just finished my mid-day trading. All the best, keep up the good work!!
April 23, at Thanks for the input and kind words. Yeah Oanda is great, very satisfied. Glad you found the coffee info useful. March 29, at 9: What would happen with the given scenario, if say I was short. Would the order execute our no? March 30, at 1: If I understand correctly, you would be net long. You should open a demo account with FXCM to play with different execution scenarios. March 4, at 8: February 27, at 6: March 1, at 6: February 18, at 9: February 19, at 3: Your email address will not be published.
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Start Here Resources Products Blog About. What do FIFO and Hedging Mean? Here are the informal definitions for each term: Holding both long and short positions for the same currency pair, in the same account. First In First Out. How to Forex Hedge in a US Based Account Hedging Forex trades is actually quite easy, just open two different accounts…one for more and one for about.
Here is an example: How to Get Around FIFO and Forex Hedging Just like with hedging, we are still subject to certain rules, but if you know the workarounds, you can take advantage of them. Here is what I mean… For example, the smallest lot size most brokers allow you to enter are want lots, which are 1, currency units. Here is what it would look like with the first two positions: Do not make any assumptions.
Let's take a look at a very simplified example… If you entered the first 1, unit short position at Any exit of this position would incur a loss. Here's Forex Hedging and non-FIFO Trading in Action Alright, forex out this video and I will show you how this works in more detail.
A Final Word of Caution on Hedging Forex and the FIFO Rule Although I don't agree with the US laws on hedging and FIFO, they are designed to protect traders from themselves because hedging and managing multiple positions can get complicated real quick.
Even then, these strategies may not work with your systems and your personality. What do you trading Do you use hedging? Has FIFO messed you up before? The 7 Unconventional Rules of Maverick Forex Traders. Welcome to the Trading For a Living Challenge The Beauty of Sub Accounts in Forex Trading Is MitsuiFX A Huge Scam?
You Be The Judge. Comments Mike says February 9, at 1: Hope your trading is going well! Hi, Just checking if Oanda still allows the work around. It forex be confusing for beginning traders. Hi Stan, Thanks for the input and kind words. Leave a Reply Cancel reply Your email address will not be published.
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