Help Center Blog Open An Account

Hedging for Futures


#1

As requested to share with the community.

Is it possible to have a hedging account for futures rather than a
netting account


#2

@jubael_haque We appreciate all the questions you ask here. These questions will serve as a good reference for many who are curious about the same things when transferring from FX Cash to Futures trading.

To answer your question: Futures do not have “hedging”. Speaking frankly, this is a term that was invented by the cash Forex industry to make the trader feel as if he did not take a loss by locking in a position.
In reality, this strategy is deceiving because you need to have almost a perfect timing to exit the long or short to come out positive. “Hedging” is near impossible and feel that this strategy is a bit deceiving to the trader who is struggling to exit the position.

In Futures trading, you must recognize your Profit and Loss with an accounting system. Most FCMs are set up for FIFO (First In, First Out), or some are offering through a back office arrangement LIFO (Last In, First Out).

Thank you,
Matt Z
Optimus Futures
www.optimusfutures.com


#3

I used to Hedge using Ninjatrader now i am on MT5. When US implemented these FIFO rules it created a problem when You are trading autotraded strategies so actually I was allowed to continue to Hedge. You might have strategies that Swing trades and hold positions for months and strategies that are mean reverting on smaller time frames which hold positions for hours which creates problems if Hedging is not allowed.


#4

@MABI Thank you for your input.

FIFO rules had existed for a long time before the term Hedging was created for FX. As far as I know, they were in the place for over twenty years but could be even longer. Hedging was never allowed in Futures because every position must be closed (offset) with an opposite position.

I am not sure what the other broker allowed you to do, but I assure you that he did not allow “hedging”.

FIFO does not stand in the way of any trader whether day trader, swing trader or combination of both. Let me explain further and provide you with a few solutions that may help you a lot.

In addition to FIFO, there is also a rule that day trades take precedence over long-term trades. This means that if you are long on Monday, and did a day trade on Tuesday, you will carry the Monday position into Wednesday.

Second, you can have two separate accounts and in each, you utilize different futures/commodities trading strategies. In fact, in my personal opinion, that is how it should be done. You keep all trades separate due to accounting performance measure.

Some FCMs allow you to cross margins account, so you can separate accounts, but they are utilized as one for margins purposes.

let me know if you have any questions about the above.

Thank you,
Matt Z
Optimus Futures
www.optimusfutures.com


#5

That is interesting. However this still does not explain why you cannot open two positions in the same direction with different profit targets. If you open one position without a Target and another in the same direction with a Target then the second Target level closes out both positions.

What this means is that you have to create another sell limit order on a long position that isn’t OCO. Risk is if stop gets hit then that order is still open.

I’m thinking is this a platform limitation. I was able to allow many long positions with each having their own Target sell limit level and sell stop levels. This was with RJO futures and their CQG IC platform


#6

Typically, if you are long 2 positions you can set different targets (sell limits), however, you are saying that if you are long two positions and you have one target then under MT5 it would close ALL your positions?
What we should do is use real examples with prices, targets, etc. This would allow me to see if indeed MT5 has these limitations. However, what you described above and was given to you by your previous Futures Broker is something that is a given.

As far as Futures accounting: you can match different positions with different price matching, and the P&L will always resort to being the same.

Thank you,
Matt Z
Optimus Futures
www.optimusfutures.com