Offsetting Transactions

Written by Research | 03 May 2009

Offsetting Transactions:                       

With the latest NFA Compliance Rule 2-43 approved by the Commodity Futures Trading Commission it now clear that offsetting transactions in the foreign exchange market is no longer allowed since May 15, 2009.

To our opinion it should not have been permitted to do this activity in the beginning. Some may or may not have noticed the gravity of what this type of strategy can do to an account and trader who has never realize the possible harm resulting from this. As early as 1980s this has been applied in the early commodities and forex trading in Asia especially in Hong Kong where the concept of open hedging was being implemented.

From the gathered information some professional traders both in Forex and Commodities who had been practicing this strategy said that it simply delayed the acceptance of a loosing position. But others have been successful at this style of trading however most were not. The odds are still against it for what has been the result from those days

In the US Commodity Futures Exchange this type of offsetting positions particular on the same contract month is prohibited. So the arbitrage hedging and forward spread was the normal strategy to do. Hedging strategies vary to some degree and style of the trader or manager who handles most of these accounts for the clients. 

That is why a more direct approach to information and source is vital for the clients who decides to get involved in this highly speculative form of investment. Experience will always be the best teacher. And to share what is conceivably the right way of information sharing is only proper especially for those who have paid their so called tuition fees in the market and this author is no exception. As for this excellent move by the governing commissions of the industry to make such a regulation is in a timely manner.

The initial trades that Megatrade101 has encountered with some of the trading platforms that incorporate offsetting transactions as a strategy in the trading systems were noticed and noted. This would have been addressed had the NFA ruling didn’t come out. There are other ways, steps and procedures that can be made to enable the investors / managers and traders do what is right and would have at least a net positive result in any trading done in these markets. A certain level of comfort in trading has to be achieved if one has to be in line with the market industry level.