GFT U-Turn on Offshore Hedging


As we reported back at the beginning of August forex broker GFT published on their website a document entitled "Get the Facts" which pointed out that their DealBook platform didn't require changing to comply with the recently introduced NFA hedging and FIFO rules. Amongst other things they stated then that:

We are aware that some forex dealers are attempting to circumvent the new rule by asking customers to move their accounts to divisions in the UK where the NFA has no jurisdiction. However, we believe you should be wary of this practice because the NFA rule is designed to offer better protection for traders.

GFT will never ask you to move your account to avoid regulation. We are proud to be fully compliant with all NFA regulations and we are committed to integrity in everything we do.

Now they seem to have changed their mind somewhat on that point. GFT recently announced that as from Sunday, Nov. 29, 2009 customers of "the U.S. entity Global Futures & Forex, Ltd. (dba GFT)" would be subject to the new NFA regulations on maximum leverage.

They took the opportunity to point out that:

GFT customers who reside outside of the US, Japan or Australia also have the choice to trade higher leverage by smoothly and efficiently transferring their current account with their existing account settings to GFT’s U.K. affiliate (GFT Global Markets UK, Ltd.).

You will notice that traders who are also residents of the United States are unfortunately unable to avail themselves of this exciting opportunity. Presumably that's because they are better off still being protected by the NFA?

Another thing GFT stated in "Get the Facts" was that:

GFT already complies with this [hedging] rule because we use a net-based system rather than a position-based system.

GFT has never allowed or encouraged hedging as a trading method. Therefore we are fully compliant with the NFA rule.

"Forex hedging" is the practice of taking contrary positions in a market in the hope that one of the positions will prove profitable. Some forex dealers have allowed hedging as a way to charge twice for the spread on what is, essentially, a non-position. To have two counter positions in a financial product is really no position at all, and there really is no financial benefit for the customer to engage in this type of trading.

As a "valued GFT customer" I received an email earlier today from GFT Global Markets UK Ltd. informing me that they are introducing some new terms and conditions effective from Thursday, 12 November:

We will soon be introducing position-based spot forex trades (where multiple individual spot forex trades in the same market will be shown as individual trades, rather than being netted together)

Sounds to me like GFT have decided somewhat belatedly to jump on the offshore "hedging" bandwagon. I suppose that if you can't beat 'em then you just gotta join 'em? "Charging twice for the spread on what is, essentially, a non-position" does have its advantages after all, as long as you're a forex broker and not a trader.

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