In the Rule 24-3b, NFA will be banning all new hedge positions after May 15, 2009.

New Compliance Rule 2-43(b) requires an FDM to offset positions in a customer account on a first-in, first-out basis, thereby prohibiting a trading practice commonly referred to as “hedging.” A customer may, however, direct the FDM to offset same-size transactions even if there are older transactions of a different size. Rule 2-43(b) is effective for any positions established after May 15, 2009. Offsetting positions that were established prior to the effective date do not have to be liquidated, but once either position is closed out after May 15, it may not be reestablished as a hedge.

The word hedging could mean nothing for those who are not into forex trading. Yet those who do trade are aware of the many uses of hedging. Hedge according to investopedia.com is making an investment to reduce the risk of adverse price movements in an asset. Investors use hedging strategies to reduce the impact of negative events on investments.

In forex trading, forex hedge is transaction implemented by a forex trader to protect an existing or anticipated position from an unwanted move in exchange rates. By using a forex hedge properly, a trader who is long a foreign currency pair can be protected from downside risk, while the trader who is short a foreign currency pair can protect against upside risk.

When you hedge, you insure yourself just in case something bad happens. However, this does not mean that you will be 100% unaffected by a negative event. Hedging will simply lessen the impact of a possible negative occurrence.

Huge corporations to small individual investors, hedging is something that is widely practiced. The easiest way to do this is to hedge an investment with another investment. The loss cannot be avoided, but the hedge can offer a little comfort.  However, even if nothing negative happens, you will still have to pay for the hedge.

Whether you decide to use hedging to your advantage or not, you will benefit from learning more about it. You will be able to use hedging to help cut your potential losses, but keep in mind that hedging will never guard against the negatives altogether.