NFA Ban On Hedging Inexplicable And Ineffective

The NFA's recent ban on hedging (effective May 15, 2009) is impossible to explain. The rationale given to me in several discussions (and merely repeating the primary cover story) is: "Hedging doesn't work. So we're banning hedging to protect the consumer." That's actually what the NFA put into press releases, and it's the only explanation offered by any source I've been able to contact.

It's total B.S.

A cornerstone of capitalism is free trade. In America, we've built our great economy on the principle that individuals can invest their money freely and in whatever manner they choose. This has, since the dawn of our democracy, led to innovation, creativity and prosperity. Creative entrepreneurs start businesses or engage in whatever investment strategy they choose...and the result is the world's most free and open capitalist economy. Until now.

America has been built on an economic system more open and more free than any ever seen in history. The NFA has changed this forever with one misguided and inexplicable regulation that seeks to prohibit American forex traders from utilizing the centuries old, proven and universally accepted hedging strategy still available to other forex traders around the globe. This ruling has actually put many American forex traders at a significant disadvantage compared to foreign traders.

Hedging is a common practice widely accepted in every marketplace where trading transpires. It's been around since the dawn of trading itself, and remained a solid strategy in every marketplace where one commodity is traded for another.

Are we now to believe that the NFA made some amazing discovery that hedging never produces profits? Are we left to merely accept the NFA ruling that, by intent, seeks to limit the trading options available to Americans in the forex market while leaving others around the world with open access to hedge tactics?

What kind of disservice has the NFA imposed on us? How more anti-free trade can they get? How can they presume to know, in absolute terms, what does and does not work for individual traders...or will EVER work? Even if hedging doesn't work "most" of the time for "most" traders, how can the NFA seek to prohibit individuals from using this valid and time proven strategy in creative and innovative ways to try and discover new ways to earn profits? This is more socialist than capitalist. The NFA might as well legislate what days you can buy versus sell.

This is the most offensive abuse of regulatory power in our free market economy imaginable. The board of the NFA needs to be replaced and, more significantly, they need to be investigated to determine if ulterior motives were involved in this regulatory decision.

It is a fact that dealers in the forex market lose money to a select group of hedge traders, and a number of popular EA's currently implement hedge tactics to profitably scalp. So, is this truly a consumer protection maneuver, or has the NFA simply worked as a puppet for big dealers in the U.S.?

In the highly leveraged forex market, hedging is an essential strategy when it comes to protecting your account equity. In the FX Power Hedge system I use myself, it's the sole key to making profits every single day. I have charts that document my success, and I stand ready to address the NFA directly with evidence that HEDGING WORKS TO PRODUCE PROFITS CONSISTENTLY. Period. Call me as a witness for hedging. I will testify under oath that hedging works, and this NFA regulation is unfounded, unreasonable and unacceptable...especially in these United States so proudly built on freedom of choice and free trade.

To my great personal fortune, the NFA seems intentionally unaware or openly disregards the nature of the forex market itself. It's global. It exists only on the Internet. There's no central exchange. There's no physical location in the U.S. where trading takes place. You can't pass a regulation in the United States and have any impact on American TRADERS...all you do is liberate those select U.S. based dealers or brokers who don't WANT to allow hedging.

To their credit and earning an immense measure of respect from myself and others who hedge, several major brokers in the U.S. have already informed us (in writing) that they are going to allow hedge trading despite the new NFA regulation. Among the first to respond in this manner were Forex (www.forex.com) and FXCM (www.fxcm.com). Both informed me within days of the NFA announcement that they will continue to allow hedging and simply run these transactions through their UK offices. They promised no interruption in service to U.S. forex traders.

We thank you for endorsing the American way of doing business.

Noteworthy, CMS has stated that they will no longer allow hedging. I have suggested that they should relocate their headquarters from New York City to Moscow.

By my observation, this latest ruling has revealed some unfortunate ulterior motives and potential conflicts of interest at the NFA. I cannot get any of the key players to openly admit what's behind this regulation. I simply have my own opinions based on how dealers work and what I observe happening with several major players. It is revealing if you simply sit back and watch the behavior of each dealer in the U.S. It's actually all pretty easy to figure out.

I don't have any evidence of conspiracy. Let's simply conclude that this anti-hedging NFA regulation is highly suspect, ineffective (except that it frees dealers and brokers in the U.S. from allowing hedge transactions if they choose). But it also leaves the door wide open for those brokers who want to ALLOW hedging, since they can simply run these transactions through their foreign offices. And, to their credit, most brokers have taken action to allow hedge trading for U.S. citizens. It's been wonderful to watch the pursuit of freedom and capitalism undertaken by so many noble institutions in the face of a regulatory organization seemingly corrupt or acting in ways that make no sense. Either explanation is unacceptable.

At the same time, and as reassurance for those of you who have begun earning your living through the power hedge, please know that you also still enjoy the benefit of trading with brokers located overseas. Alpari and FX Pro (both in the UK) are just two of the world leading brokers worthy of consideration.

Meanwhile, I'm an advocate of supporting U.S. brokers like Forex and FXCM who, in the face of unreasonable over-regulation by the NFA, have taken action to navigate around this excessive abuse of power and allow U.S. traders the option of hedging. I encourage you to support brokers such as these as I do today.