In my brief time of messing around with this Forex Trading, I’ve often heard the comment, “CLOSE HALF THE TRADE”. Can someone explain, what is meant by “Closing half a trade”? And, how is it done?
Thanks in advance.
[B]Closing half the trade[/B] simply means closing half of an existing position by either (a) selling half the lots you are long, or
(b) buying half the lots you are short.
Make sure you understand whether your trading platform is configured for [B]hedging[/B]. If it is, make sure to learn your broker’s instructions for closing a portion of an open position, so that you do not inadvertently put on a hedge.
Most brokers who allow hedging have easy-to-follow steps for either (a) closing a portion of a trade, or (b) putting on a hedge.
Trading platforms vary, so study the platform that your broker provides.
I trade with FXCM. In their platform, if I want to open a new postion OR put on a hedge, I click on [B]Open Position[/B]. On the other hand, if I want to close all — or a portion — of an existing position, I click on [B]Close Position[/B].
Here’s an example. Say that I have bought 2 mini-lots of EUR/JPY, and the price has reached my first profit target. The charts continue to look good, and the EUR/JPY appears to have good upward momentum. Rather than close my entire position, I decide to close half my position (one lot) and let the other half run. In my FXCM platform, I click on [B]Close Position[/B]. A pop-up box appears, showing my entire 2-mini-lot position as [B]20K[/B]. I change this figure to read [B]10K[/B], and click [B]OK[/B]. I have now entered a market order to close half my position — that is, to close half my trade. My net position now is: long one mini-lot of EUR/JPY.
I hope this answers your question.
Clint
p.s. - For those not familiar with the concept of hedging, if you buy one lot of a particular pair, and then sell one lot of the same pair, you will have two open positions which are opposite to one another. As long as this situation exists, price moves (either up or down) in this pair will be canceled out. Putting on a hedge does NOT close your original position, or any portion of your original position. Putting on a hedge involves paying the spread on each leg of the hedge. Unwinding the hedge involves closing one, or both, legs of the hedge.
BTW there is a NFA ruling on no more hedging…
Clint
Does this mean that you would pay twice the spread (compared to simply closing your position) if you did this and then subsequently closed your open positions?
The trading system I am experimenting with (on a demo account) involves closing half my position, after a certain profit has been achieved, and letting the remaining half run with a trailing stop, which I do manually. To achieve this I have been opening opposite positions. What should I be doing -I am using MT4?
Ironside
ironside have u checked if hedging is ending for yr broker
[B]Trading801[/B]: you are correct with respect to [B]U.S. retail forex brokers[/B]. These brokers are regulated by the CFTC (U.S. gov’t regulator), and by the NFA (U.S. industry self-regulatory organization).
The NFA has recommended (and the CFTC has enacted as law) that U.S. retail forex brokers will no longer be allowed to transact hedging orders after May 15, 2009. The NFA refers to these brokers as FDM’s. Here’s an excerpt from the NFA Notice:
Notice I-09-10
April 13, 2009
Effective Date of NFA Requirements Regarding Forex Orders
NFA has received notice that the Commodity Futures Trading Commission has approved new NFA Compliance Rule 2-43 regarding forex orders. The prohibition on carrying offsetting transactions will be effective for any positions established after May 15, 2009. The requirements regarding price adjustments will become effective as to all customer orders executed after June 12, 2009.
Offsetting Transactions
New Compliance Rule 2-43(b) requires an FDM to offset positions in a customer account on a first-in, first-out basis, thereby prohibiting a trading practice commonly referred to as “hedging.” A customer may, however, direct the FDM to offset same-size transactions even if there are older transactions of a different size. Rule 2-43(b) is effective for any positions established after May 15, 2009. Offsetting positions that were established prior to the effective date do not have to be liquidated, but once either position is closed out after May 15, it may not be reestablished as a hedge.
To read the entire NFA Notice, go to: National Futures Association | News Center
Hedging will still be possible through non-U.S. brokers — and at least one Canadian broker that I’m aware of is advertising that they will not be affected by this NFA ruling.
Depending on where you are in the world, and where your broker is domiciled, this ruling may or may not apply to you.
[B]Ironside[/B]: I’m not sure that I understand your question. If you are asking whether two spreads apply to a hedged position, the answer is Yes, because a hedged position is simply two separate and opposite positions. Your broker isn’t going to give you a free ride on either one.
If that wasn’t the meaning of your question, please write back and clarify what you are asking.
Regarding your question about partially closing a trade in MT4, I’m not familiar with the way you are doing it. Here’s a video clip explaining the method that I’m familiar with: Partial Close of Orders in MetaTrader 4
Clint
yap …
trading801
My broker is Alpari based in london and so the new rules may not apply…
Clint
Thanks for the link. I’m more accustomed to trading commodities where you close a trade by taking an equal and opposite position. It seems thats not the case with FX. the term hedging is also used slightly differently.
Thanks
Ironside
Thanks for answers, I guess. But, I do believe, I’ll just stick with what I’m doing now. Seems to be working so, as the ole saying goes, why “fix” what isn’t broke???
Thanks again…