Forex Hedging

[fadydodo]

Forex hedging is hedging in the Forex market. Hedging involves a trader reducing his/her risk in trading. This does not eliminate the risk or the damage caused by an unexpected event in the market that causes the position of the trader to adversely affect his/her funds, but proper hedging can reduce the negative effect on those funds.

 

A trader who is long in a currency pair can use hedging to protect himself/herself from downside risk, while a trader who is short in a currency pair can use hedging to protect himself/herself from upside risk.

 

The easiest way for a trader to implement Forex hedging is to make another transaction involving another currency. This currency should have a negative relationship with the currency involved in the first transaction.

 

For example, if you are going long on U.S. dollars and an event in the world leads to either the U.S. dollar or the Japanese yen increasing, with the other currency falling, you can protect yourself by going long on Japanese yen. This way, no matter which currency increases, you will gain.

 

For those experienced traders who know how to use hedging in their trades, hedging can really keep losses down to a minimum. However, there are some risks to hedging that you need to know about before you start using it.

 

Realise that hedging does come at a price - you have to pay for the hedges, regardless of whether you needed them or not. You have to make sure that the hedges are worth the money you will spend on them, especially if the expected negative result does not happen. If you can't justify the money you will spend on the hedge, then you should not hedge your primary investment.

 

Additionally, Forex hedging in itself will not make you money; it is there to help protect your funds from adverse and unexpected events that would cause your primary investments to lose money. You need to be sure that the hedge will protect you as well as you think it will. Those who are inexperienced or who are not fully aware of how hedging works may think that they are protected to a large degree by a hedge he/she executes, then find out after an adverse event that the hedge didn't protect them as much as expected or at all. This can result in devastating losses from the primary investment AND the cost of the hedge as well.

 

Implementing proper Forex hedging can be an effective tool for the knowledgeable trader. Proper hedging can eliminate much of the risk and financial losses that traders can experience when adverse and unexpected world events cause the currency values to fluctuate in ways that are not expected. By learning how and when to hedge, you can increase your chances of being successful of trading on the Forex market.

[myregister]

One of the useful strategy that could bring profit and stopping the loss if we know how to do it. But be careful with locking the position for long time, if you still don't know when to release it then never do hedging, even this could be useful still it has some downside too.

[Alice Frampton]

Hedging is a very complex method, it must be done only under someone’s guide or at least having good self experience. There is no alternative when it comes to hedging if it’s done without any prior knowledge or experience than we are going to face a huge struggle. Working with a company like OctaFX which allows me to use any trading technique like hedging, news trading or even scalping, it’s no barrier for me to do that but it’s not useful to me.

[myregister]

It will be a constant loss, i mean that if we already loss in a big amount it is better not to use hedging unless you are pretty sure that your third position will be cover all the loss because of this hedging. Sometimes hedging would be so much confusing for traders.

[shemoalaa85]

One of the useful strategy that could bring profit and stopping the loss if we know how to do it

[pepy]

Forex hedging is one fo the natural way to convert your trading become more stable, i know this may sound a bit strange but many hedger really did this in chaos way and saving their capital yet still able to grow and trying to create more profit later.

[myregister]

Forex hedging is one fo the natural way to convert your trading become more stable, i know this may sound a bit strange but many hedger really did this in chaos way and saving their capital yet still able to grow and trying to create more profit later.

Not to make it stable but one of the way to survive when we trade, look at the market when it has some problems like the price is volatile so much, we could use hedging at that time. With hedging you don't have to worry about your own trading your position will be locked.

[pepy]

Not to make it stable but one of the way to survive when we trade, look at the market when it has some problems like the price is volatile so much, we could use hedging at that time. With hedging you don't have to worry about your own trading your position will be locked.

Hedging is two headed sword. Only advanced users that use it to its fullest by covering their core income so there are no further losses. Hedging is similiar like protecting your earning even it means you let the profit to slip in front of your eyes. By unlocking it you can grab that profit but once again it need careful thinking.

[myregister]

But in fact and in practice that thing is useful, you will see many hedge manager can survive in those hard times because they hedge their position, they sustain lower losses or even no losses or even their profit while the rest of the world suffers, i know that is two headed sword but use it wisely.

[pepy]

Hedging in forex is the act of protecting our assets from loss, but like i said before it is a two headed sword. This hedged position means that your position will be locked on that place again and again. Not profit nor loss, this is why it is better if you don't do that in wrong time, because lead to endless loss.

[myregister]

As i told before, hedge manager use hedging activity to survive, and it means protecting their assets from loss just like what you said before. As you said also it is two headed sword, but i am sure if you can use it wisely it will be a great tools in order to make better trading especially in long term, we can see how hedge manager do it. According to me, experience is also playing bigger part so someone able to do hedging well in forex.

[pepy]

That is a good point about the experience that we get could help us but i think before we get experience we must do hedge, how can we become good hedge manager just from read and never really do it? That is impossible and also maybe in our early phase training to hedging we will lose more money that we expect, but still we get experience isn't it?

[myregister]

True, risk management is very important thing, it does not mean that you have to hedge your positions and then fail for example and trying to do that again. So if your risk management already good doing hedging won't be such a big issue for you later.

[pepy]

I clearly don't get your message and what are you want to say here, Hedge is the part of risk management we hedge because the risk is presently exist in the market and we want to stop loss. So saying something like risk management means hedge inside too.

[myregister]

What i want to say that you shouldn`t do hedge if you talk about RM. Using SL and TP also àre RM, hedge is good when you are in high volatile condition also if you have bigger income.

[pepy]

Risk management is including hedging a position, just like you said hedge is good when in high volatile condition. Also to a professional hedge is the last thing they can do to protect their asset and in this case is forex that we are talking to. Buy USDJPY while selling USDCHF is actually one of the way to protect asset so if usd either strengthening or weakening we don't have to worry.

[myregister]

Hedging, well i think this is one of technique in financial market which used by some people while some said it is good while the others said it is bad, to me this is just neutral technique where you pairing the same pairs to against each other so your loss intact or your profit intact. Use it wisely will bring more profit to you if not big disaster.

[pepy]

As i said before hedging is very useful and good in volatile condition, especially for someone who doesn't want to take a risk. Hedgin EURUSD in NFP for example could bring a good result or bad depend on how you hedge, make sure you hedge when it comes to profit, so you theoritically lock your profit.

[myregister]

Actually Hedging means take a risk too, but i can say it is more like limit the risk use different approach. I don't know why people take it but i think that is because of the "lock" feature which many people said, with locking a position it wouldn't make us suffer more loss and that is good.

[pepy]

The risk of hedging is different because as you said lock feature which help trader to "halt" their loss or profit. After that a trader can open other position to reap more profit or reduce the risk. They see hedging as a good place to control the risk and more easier to manage.

[myregister]

Different but still risk imagine you close your big loss position in the wrong time, you will ended up with that big loss locked and you must find a way to recover and how about if you current position won't give you equal or more profit than your loss? Put this into your account before do hedging.

[pepy]

Different but still risk imagine you close your big loss position in the wrong time, you will ended up with that big loss locked and you must find a way to recover and how about if you current position won't give you equal or more profit than your loss? Put this into your account before do hedging.

That is the risk hedge if you use it carefully will bring also more managable position and your risk won't be so much bigger also you can even get more profit that will step by step to reduce the risk you get, but as i said it is risky and you must know the right time to use it and not by instinct alone.

[myregister]

If you can do that, and please note that. It requires deep understanding about how forex market works if you simply cannot get the grasp you may ended up losing more. From my own perspective Hedge requires more advanced skill especially like when to do "locking". It is essential to lower the risk while maximize your potential to get profit.

[pepy]

Of course, once you make a wrong lock, you may ended up losing more and the worst when you unlock one position and hope to get more profit but instead more losses then you should say goodbye to your account where you lose a lot of money for it. But we can practice to hedge in demo account isn't it? At least for sharpening our skills.

[myregister]

This is why a trader should be so much careful when trade by use hedging. All you need is trustful indicator as your lead to decide whether you want to hedge the position or not. By doing that you can carefully plan your activity as trader when hedge and reduce unecessary hedge which cause more loss.