I’ve just recently began looking into forex. Someone tell me what makes this a bad idea: What is to keep you from buying and selling a lot and setting a stop loss for each, and which ever way the currency takes off, you win.
Example: I go long and short with the yen @ 92.30 with a 30 pip stop loss set for each. Either way it moves you are covered.
Am I missing something that makes this a bad idea? Your feedback please.
Thanks
First you’ll lose because of the spread cost. Next the market could range and trigger both your SL.
I think that is called hedging and it has just recently been made illegal. You can’t get in trouble for it, but US brokers just won’t let you do it. Correct me if I’m wrong, anyone.
You’re right. You can’t do it on one account. But what can legally keep you from opening one account and say maybe your wife opening another.
ya you can do that, the only point will be on your capital to trade, in order to keep you in the market. Just imagine that the price go in one direction and never come back in the other. What you do ? You just win in one side and lose in the other.
So with a hudge capital you can keep your lose for a long time, but this is very boring way of trading sometime…
Or you can just do what some of us do and open an account with a broker in the UK. Then you can hedge all you want (but I never do, for the reasons mentioned above).
Hedge with 2 negatively correlated pairs.
Keep in mind that if you hedge with neg correlated pairs that pip value, spread and required margin are different for individual pairs. All of these need to be taken into account and planned for.
One way some deal with this is to trade a ring. EURUSD, USDCHF and EURCHF for example. Complicated at best, beyond the scope of this forum, certainly. The best reason not to, is that anything you have thought of has already been thought of and tried. If it were the golden goose, everyone would be doing it. Common sense should now take over.
Beside of not possible with nfa accounts this is a classic channel setup:
You set a buy/sell order with order price in the middle of the channel, SL/TP at the opposite edges of the channel for both orders and you hope that the price jumps within the channel from edge to edge. Then you will earn profits. But nobody knows how long that channel lasts. If the price jumps out of the channel it gives you sort of loss. A smart idea to trade a channel, though.
The best thing to do is trade your system on a demo account and determine if it works.
Going both long and short at the same time with same size lots is just an expensive way of being flat by paying two spreads.
It’s like taking the car to the bank to deposit 100$ and at the same time withdraw 100$. Really, you have done nothing: 100-100= same as doing nothing, but you payed the gas for the car, which is the spread. Would have been smarter to just stay home in the first place huh
Why anybody would hedge like that is a complete and utter mystery to me.