What are Netting accounts in stock trading?
Market hedging is one of the popular strategies when trading forex or stock exchange.
The essence of this strategy is that the trader opens two transactions of the same volume for the same asset, but in different directions.
This approach in some situations allows you to minimize losses and make profits; accounts on which hedging is allowed are called “Hedging”.
This strategy is described in more detail in the article - https://time-forex.com/strategy/strategii-khedzhirovaniya
But sometimes, when trying to hedge in a trader’s trading platform, instead of a new position, the existing one is closed.
Netting is a type of trading account that allows you to open positions in only one direction at a time.
That is, if there is a buy deal on the EURUSD currency pair with a volume of one lot , then opening a sell order with a volume of 1 lot will simply lead to the closure of the first deal.
Why is hedging prohibited?
There are several reasons for prohibiting such a strategy. The first is the legislation of the countries in which trade is carried out, for example, in the United States:
The second reason can be called a ban from the brokerage companies themselves, who consider hedging a rather risky strategy for their clients. Although this reduces the profits of the brokers themselves.
In fact, the ban is quite formal, and it can be easily circumvented by opening trades in opposite directions on different accounts with the same broker.
It is more difficult if you use a hedging advisor , which involves trading on one account.
If you often apply a hedging strategy or use advisors based on it, here are several brokers with Hedging accounts - https://time-forex.com/vsebrokery/zastrahovany-broker
Benefits of Netting Accounts
Surprisingly, Netting accounts also have their advantages. These include the ability to more finely manage an open position.
On a Netting account, you can, using pending orders, partially close an existing position or close it completely, and at the same time open a deal in the opposite direction.
For example, you have a position to buy the EURUSD currency pair with a volume of 1 lot, you place a pending order to sell with a volume of 2 lots. After it is triggered, the first buy order will be closed, and a new sell order with a volume of 1 lot will be opened instead.