What are netting accounts in stock trading?
Market hedging is one of the popular strategies when trading on Forex or stock exchange.
The essence of this strategy is that the trader opens two trades of the same volume on the same asset, but in different directions.
This approach in some situations allows you to minimize losses and make a profit; accounts where hedging is allowed are called “Hedging.”.
This strategy is described in more detail in the article - https://time-forex.com/strategy/strategii-hejirovaniya
But sometimes, when attempting to hedge in a trader's trading platform, an existing position is closed instead of a new one.
Netting is a type of trading account that allows positions to be opened in only one direction at a time.
That is, if there is a buy transaction 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 transaction.
Why is hedging prohibited?
There are several reasons why this strategy is prohibited. First, there are the laws of the countries where the trade takes place, such as the United States:
The second reason is the ban imposed by brokerage firms themselves, who consider hedging a rather risky strategy for their clients. However, this reduces the brokers' profits.
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's more difficult if you use a hedging advisor , whose work involves trading on one account.
If you frequently use 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 precisely manage open positions.
On a Netting account, you can use pending orders to partially or completely close an existing position and simultaneously open a trade in the opposite direction.
For example, you have a buy position on the EURUSD currency pair for 1 lot and place a pending sell order for 2 lots. Once the order is triggered, the first buy order will close, and a new sell order for 1 lot will open in its place.
