Hello everyone I tried hedging yesterday just to experiment on my demo. I opened a short and long position on the gbp/jpy with the same lot size 1 right after the other. And it seems regardless of where the market is going I’m on a slight loss. I assume this is beacuse of the spread and if I want to profit I should close my losing position and with hopes of market going in the direction of my winning one. I read hedging can be used to reduce losses aswell but I have no idea how to use it. Would be great if someone suggests a low stress hedging startegy. It seems like a fun way to trade.
Hedging is a good trading strategy it help in limiting your risk when you have a proper understanding of the bigger picture of your trade and relative conditions. Though not all brokers allows hedging.
are there any “special” pairs to hedge between so you would have better results?
Futures are often hedged with Options where you pay Premium to have a right to sell or buy an asset on a predetermined price.
On Fx I’d recommend to hedge through relative currency pairs, not just opposite positions as it doesn’t carry any sense. Hedging is not designed to cover all your loss, bu only a part of it, so don’t try to search for holy grail hedging technique where your trading losses would be reduced to 0. Sometimes I hedge my touch-and-go positions on Tickmill (XAU/USD through comdoll pairs as gold and USD have inverse correlation), in this case loss reduction reach about 35-40%.
Hedging works great to limit trader profits and maximize dealer income.
-Adrian
Hedging is NOT a strategy. It’s a method of accounting.
Of course, read “Pair trading” on that matter. In a nutshell those assets/pairs price movements should be highly correlated between each other to make hedging possible and applicable there.
thnaks for the info i will take a look at it!
I’ve recently come across a new account that ironfx is giving. It is called a mirror account. You should check it out. I think it might be something similar to what you are looking for. I’ve made some clean profit with this.
Hedging is a strategy that people use to limit their potential losses.
If you are afraid your stocks will go down, you can ‘hedge’ the risk by buying something else, such as treasury bonds.
A company may also use hedging, usually to smooth their profits and losses over periods of price volatility. They may do that by shorting (betting against) the price of their inventories or by buying interest rate caps on their loans.
Strategies can’t be licensed, although you should look into the specific regulations if you’re professionally managing someone else’s money.