forex

Thanks in part to new regulations from the NFA as well as the SEC, many American based forex brokers could no longer allow investors to hedge their positions. Hedging, of course, is the process of buying and selling the same currency pair at the same time.

Forex Hedging

Imagine you own 50 lots of EURUSD and think the price may soon plummet. You choose to sell 40 lots, which brings your net exposure to EURUSD from long 50 lots to long 10 lots. Should the EUR/USD, you’ll only lose one-fifth of what you would have if you did not hedge.

Unfortunately, NFA regulated forex brokers cannot allow hedging to their clients. Previously, forex traders could long 50 lots of EURUSD and simultaneously going short 40 lots, for a total of 90 lots. Now, with NFA regulated forex brokers (US Based Forex Brokers), the trader can only be long or short, not both. So, when the trader seeks to sell 40 lots of EURUSD, the forex broker is forced by regulation to simply lower the total net position to long 10 lots of EURUSD.

How to Hedge with Any Forex Broker

To hedge your positions with a US broker, you’ll have to open two accounts, one for long positions and one for short positions. Unfortunately, this can be cumbersome, as well as make accounting more difficult.

List of Brokers that still allow hedging

Here is a compiled list of forex brokers that can legally allow their clients to hedge their positions without opening multiple accounts:
ACM

ActivTrades

Admiral Markets

Advised Trading

Alpari UK Ltd

Apex FX Trading

Arab Financial Brokers K.S.C.C.

ATC brokers

ATFX – Able Trend Forex

ATG Marketplex (non-US accounts)

Atlantic FX

AvaFX

AVS Carter

Baron Forex

BroCo

C.I.M Banque

Charter FX

CG FOREX

dbFX

Deltastock

Deutsche Bank AG

EFX – England Foreign Exchange

EXNESS

Exto Capital

Fastbrokersfx

FCMarket

Fibo Group Ltd

FIGfx

Fin Market

FinOdds

Forex Capital Trading

Forex Ltd

Forex Metal

Forex Ukraine

Forex Trading Edge
Forex4you

ForexCT

Forex FS

Forexial FX Solutions

Forex Place – 4XP

ForexYard

ForInvest Group

FX Clearing

FX Open

FX Solutions UK

FX Trading

Fx-Pro

FXcast

FXCBS

FXCH

FXCM UK

FxCompany

FXLite

FXM Financial Group

FxPro

Gallant FX

GCI Financial

GIGFX

Global Clearing Group LTD

Global Futures

GO Markets

GTL Trading

IamFX

IFC Markets

iForex

IHI – Investment House International

Interactive Brokers

Interbank FX (2 split accounts)
InvestTechFX

JadeFX

KVB Kunlun

Lite Forex

Mandus Invest SA

Marketiva

Master Forex

MBCFX – Multiple Banks Clearing

MIG BANK

MoneyForex

Neuimex

NordMarkets

NTWO Capital Markets

OneCorpFX

PFGFX – Pro Finance Group

Poltek FX

Prime4x

Pro-Forex

PronetFX

Real Trade Group, Ltd

Saxo Bank

SFXB – SwissFXBroker

Sigma Forex

SmartTradeFX

Spot Trader FX

Swiss International Financial Brokerage K.S.C.

Tadawulfx.ch

TGM – Taurus Global Markets, Ltd

The Collective FX

Tradeview Forex

Uni-FX

UWC – United World Capital

Vantage FX

Varengold Bank FX

Windsor Brokers Ltd

X-Trade Brokers

XForex

10Pips

1pipfix

Fiat currencies have come under criticism for their long history of failure. In fact, virtually every single fiat currency has failed.

Why All Fiat Currencies Fail

The biggest reason fiat currencies fail is because there are no limits to the amount of currency that can be printed up by the issuer—whether it be a treasury or central bank. Think about it. In your pocket, wallet, or purse, you likely have at least a few paper dollars. There is nothing, other than the ink on the bill, that differentiates between $20 and $50. In fact, it costs just as much to make a US $50 bill as it does a $1 bill, about $.03. Crazy to think about, huh?

Failure of Fiat Throughout History

Some of the most notable failures of fiat currency are the Colonial United States, the Weimar Republic, and Rome. The colonial United States had a currency long before the US was even a country. However, to pay for war, the colonies printed up huge amounts of currency, devaluing each dollar held by the public and redistributing money from the average person to the government. The Weimar Republic followed a similar path during WWI in which small denomination bills were worth more for their paper than they were for their purchasing power. The Weimar Republic is known worldwide as an example of fiat currency failure due to inflation.

Fiat Currencies Are Prone to Inflation

One of the biggest failures of fiat currencies is that they can be inflated to no end, often times without consent of the public. In Wiemar Germany, a single US dollar was worth 12 Marks in 1919. However, just four years later, the same $1 could buy as much as 4.2 trillion Marks. As you can see, inflation is clearly one of the biggest failures of fiat currencies.

Believe it or not, there was once a time that every currency was pegged to the US dollar. This one done by a process known as a fixed exchange rate system. In a fixed exchange rate system, the prices of currencies are set by governments and central banks, and do not rise and flow with market changes.

When this system changed, the virtual peg of currencies to the US dollar was removed, however, many currencies were still pegged to the dollar.

Currencies Pegged to the US Dollar

Florin
Bahamian Dollar
Bahraini dinar
Barbadian dollar
Belize Dollar
Cayman Islands dollar
Djibouti franc
East Caribbean Dollar
Nakfa
Jordanian dinar
Lebanese lira
Rufiyaa
Omani rial
Qatari riyal
Riyal
Bolivar
United Arab Emirates dirham
Chinese Renimbi (yuan)

Today, only a few of these currencies are still pegged to the US dollar. Since 1971, many governments decided that it may not be in their best interest to peg to the US dollar, and instead allow the market (forex) to decide exchange rates.

Chinese Currency Peg

The Chinese Renimbi, or yuan, remains as one of the most well-known currencies pegged to the US dollar. By keeping the price of the local currency worth roughly as much as the US dollar, the Chinese are able to encourage an active foreign trade with American businesses. Today, China and the United States are huge trading partners, thanks in part to this peg.

The engulfing candestick pattern can be both a bullish and bearish signal depending on how the candlesticks form. The first candlestick is comprised of a small body candlestick followed by a large candlestick (either positive or negative) that “engulfs” the previous candlestick.

Here is an example of the engulfing candlestick pattern:

Very much like the evening doji star, the evening star consists of a positive candlestick followed by a small body candlestick poised above the first candle, and one last candlestick that opens lower and declines deep into the first candlestick. This candlestick pattern appears only at the top of charts.

Here is an example of the Evening Star candlestick pattern:

The evening doji star is one of the most bearish candlesticks, consisting of a large uptick in price, followed by a doji, then a decreasing candlestick. This three candlestick pattern is extremely effective in finding market tops, as it reflects a move to the upside, indecision, then a large dip in the current price. This candlestick pattern is only found at market tops.

Here is an example of the Evening Doji Star candlestick pattern:

Dark cloud cover is a bearish signal to investors, indicating that the price of a currency pair is soon the fall. Dark cloud cover begins with an advancing candlestick that is overshadowed by a declining candlestick that opens higher than the last close but also closes below the midpoint of the fist candlstick.

Here is an example of the dark cloud cover candlestick pattern:

Just like the regular doji, in a dragonfly doji pattern the price of the currency opens and closes at the same point. However, a dragonfly doji differs in that the open and close price are at the very top of the candlestick. The dragonfly doji usually only appears at market turning points, where a new direction is likely to occur.

Here is an example of the dragonfly doji candlestick pattern:

The Doji candlestick pattern is made up of a candlestick that goes both postive and negative, but ultimately closes at the same price of the open. A doji indicates indecision in the market, in that the currency pair edged higher, but ultimately closed at exactly the same price of open. Typically these are found at the top and bottom of charts, due to opposing forces of the market.

Here is an example of the doji candlestick pattern:

The US Dollar was once backed entirely by gold, thus earning the term “greenback.” The Swiss Franc (CHF) was once 40% backed by both gold and silver, until 2006 when the country had to sell its gold and silver reserves to join the IMF. Today, not a single solitary currency on the face of the world is backed even 1% by gold or silver, as all nations have inflated their currencies to unprecedented levels in the past 50 years.

Commodities (Gold) and Currencies

Despite selling its large gold and silver reserves in 2006, the Swiss Franc (CHF) remains as an excellent bet on precious metals. Investors, seeing value in the anonymity and neutrality of Switzerland, typically buy the Swiss Franc as a safehaven investment during turbulent economic times. The USD/CHF pair typically performs to parity with the price of gold, with the dollar typically representing the “anti-gold” and the Swiss Franc a partial gold hedge.

Forex Brokers and Commodities

Since you can’t buy a currency backed by gold, the next best investment would be to buy gold either on the spot or futures markets. Many forex brokers such as Oanda.com and others allow investors to buy spot gold with leverage, enabling the ability to short virtually all currencies. Oanda in particular offers 30:1 leveraging on the spot price of gold, which is one of the best offers in the forex market. Others, such as InteractiveBrokers allow investors to buy and sell on the futures market, which is highly leveraged (100:1) but requires greater timing to profit.