What's a Hedge order?

What’s a Hedge order? What is it used for?

Hedged orders are orders made for the same instrument in the opposite direction. What are they used for is quite a complicated answer. It comes down to trading strategy, essentially it is a process of offsetting risk.
A common trade in the stock market will be to buy a put option against a long stock position, how much of the long position is hedged with the put option will vary based on strategy and the time cost of buying the option (hedge). With FX it can be multiple trades open on the same pair long and short, each trade may have its own strategy and not be connected to the other. This is still considered a hedge but will require a pro-hedged account with the broker, not just a standard account.
Some large commodity or manufacturing companies may have a large position in a particular currency that they may wish to offset some of the volatility risks.

Hedging with forex is a strategy used to protect one’s position in a currency pair from an adverse move . It is typically a form of short-term protection when a trader is concerned about news or an event triggering volatility in currency markets.

Will it diminish my risk to some extent? And, when should I rely on hedging? I need to know in root. Thanks a lot!

Hedging is a way to protect yourself from potential losses. When you open a trade and then take the opposite position. For instance you buy 1 lot gold you saw it in negative then you sell 1 lot gold to prevent further loss. Some brokers do not let hedging so ask them.

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Could you do a poor man’s hedging strategy with two accounts trading in opposite directions?

Hello there, how are you?
Check this out, you are going to be amazed :slight_smile:

Hi Kancho, The answer is - it depends on your trading strategy, and what you have developed/tested that you think creates a profitable trading edge.
If you are just learning about building a trading strategy do not focus on hedging. This is a complicated process and generally, it will lower system profitability, the trade-off being to minimize portfolio risk to adverse events, or in trading language “Tail Risk”

Hi Samewise,
You don’t need two separate accounts, just one which allows multiple trades long and short (Non-FIFO)
By “poor man’s strategy”, I assume you mean a simple hedging strategy. There is isn’t one, the execution may appear simple but the thought and data analysis behind the trades is complicated, the same as going long or short trading strategy.

Yea, is this offered in the US. I’m hearing hedging isn’t allowed, so that’s why I asked if two accounts could do the same thing.

For example, if a trader has a long position on EUR/USD, they may place a hedge order to protect against potential losses if the price of the currency pair moves against them. They could do this by placing a short position on USD/CHF, as this currency pair tends to have an inverse correlation with EUR/USD. If the price of EUR/USD falls, the trader can potentially offset some or all of their losses with gains from the short position on USD/CHF.

Hedge orders can be useful for managing risk, but they can also limit potential profits. It’s important to use them judiciously and to have a clear strategy in place before using hedge orders. Some brokers offer tools and features that allow traders to place hedge orders automatically, while others require traders to place orders manually. It’s essential to check with your broker on their policies regarding hedge orders and to understand the potential risks and benefits involved.
i would be glad to help you in case you have further queries.

It’s a useless order. Dont use it

Hi Samewise,
Yes two separate accounts can achieve the same thing.

As per my knowledge, hedge orders are trading orders used to reduce or manage the risk of existing investments or trade positions. Specifically, it involves placing a trade opposite the original investment in order to reduce overall risk and eliminate potential losses.

Yes would like to know as well since that cost me R23k in 15 min because I didn’t know my account was hedged and my husband / broker forgot that I only traded for 3 days and not a year like him

Hedging in forex refers to a risk management strategy that involves taking two offsetting positions in a currency pair, with the aim of reducing the overall risk of the trades.

In forex hedging, a trader will open a buy and a sell position in the same currency pair at the same time. The idea is that if one trade loses, the other trade will profit, thereby reducing the overall risk of the portfolio. Hedging can be accomplished in different ways, including using different currency pairs or derivatives such as options and futures.

Hedging is often used by forex traders to manage risk in uncertain market conditions or to protect against potential losses in their trading positions. For example, a trader who has a long position in a currency pair and is concerned about potential downside risks may hedge their position by opening a short position in the same currency pair, with the aim of offsetting any potential losses.

It’s important to note that hedging does not eliminate risk entirely, but rather seeks to manage it. Hedging can also be a complex strategy that requires a good understanding of the market and the various tools and instruments used in forex trading