I have seen many profisional traders that always hedge there positions instead of placing an order on that position … nevermind limits or stops … and the thing that really surprised me that they at the end just close by the positions … so why not closing it in the beggining … WHY HEDGEING THE POSITION
Exactly, analyse it, trade it and stick to it, hedging is like half expecting it to lose.
I think one of the biggest problems forex traders run into when they encounter “hedging” is they don’t quite get the concept. Hedging is a strategy that is employed to reduce exposure to risk. New forex traders, for whatever reason, believe it involves going long and short in the same currency pair. That is not a hedging. That is insanity.
If you have entered a large position long the USD/XXX, it can be hedged with a put option. If the USD/XXX rises, as expected, you make money. The option is relatively cheap so if price on the USD/XXX goes skyrocketing up as you expected you only have a small additional cost (the cost of the option) added to your trade. If the price of the USD/XXX goes down, however, you can then excercise your option and limit – not eliminate – your risk.
Hedging can also be employed in other markets such as equities – when the economy is roaring certain stocks usually do very well such as tech stocks. When the economy is going south then consumer staples sectors usually do well. You can invest (not trade, but invest) in both markets to reduce your portfolio’s overall volatility.
The new spot forex trader that decides to “hedge” by going long and short the same currency pair… well, what can I say? They may as well not take any trade and just write their broker a check for the double spread and call it a day.
Thanks purplepatchforex … I think your right …
Thank you … but I know what hedge means … my question was that … why these traders place an order on market and hedge there position (same pair-mostley on futures not spot) instead of just placing an order on that position … and after they hedge it they close both positions by each other … (by the way when close by you dont pay double spread):22:
If this kind of strategy ( limiting risk with options instead of using Stop losses ) is used by the pros, why don’t we use it as well ? why isn’t it teached in the babypips school ?
In which case should we hedge with an option and in which case should we set a stop loss ?
First, BabyPips is generally for spot forex traders and sticks to the spot market for the most part. Second, traders in the spot markets are generally short term traders and using options is usually for longer term positions. For an active spot trader, getting involved in other markets (futures, for example) to simply make use of a small hedge adds a great deal of complexity, extends the learning curve and complicates what should be simple, straightforward profit/loss trades on currency pairs.
There are better markets to take advantage of hedging strategies than forex. The best way to trade forex is analyze the market with a method you are comfortable using, whether it is price action, indicators, astrology or something else, place your trade with a stop loss in place to limit risk and accept either a winning or losing trade. To be successful you need to make more from winning trades than you lose on losing trades. No hedging required.
After reading your post again, I think what you were refering to, originally, is using both puts and calls on the same instrument. After price moves in your favor in one direction, exercise that option and let the other expire.
After reading your post again, I think what you were refering to, originally, is using both puts and calls on the same instrument. After price moves in your favor in one direction, exercise that option and let the other expire.
Could this kind of strategy be profitable ?
It can be if there is enough market movement to capitalize on it. If the markets don’t move enough in either direction then you have two options that expire and you are out of pocket for both.
My immediate reaction to this is that you’re not really talking about proper professional traders. If you actually talked to traders at banks, hedge funds, etc. they would absolutely laugh at the idea that being long and short at the same time is anything other than being out of the market. Anyone who claims they are using a hedging strategy of that kind to make money in the markets are not professionals. They may think they are, but they don’t really know what they’re on about.
This is a standard straddle (or perhaps strangle, depending on the strike prices of the options).
The funny thing is retail forex traders think they can do the same thing by going long and short at the same time.
John is right you can make money off hedging options. If you put a call and a put it does not matter if price goes up or down you can make money. However if price does nothing then you lose double. Also option are not really for day traders. That is more investing strategies and IMO there are far better strategies out there than that. So in point there is no real point trying the hedge spot forex all you are doing is paying your broker more money.
The only time I have hedged currencies to a certain degree is when I have a long term Buy/Sell open, and I want to Sell/Buy in the short-term. So riding both the daily trend and the opposite lower time frame trend, such as pull backs to the overall trend.
But that is not really hedging thats taking a longer term and a shorter term trade. Basically those are 2 separate trades. Yes that can be highly profitable by taking a longer term trend trade and then placing shorter term counter trend trades to make money off the retracements.
Would be even more profitable if you completely reversed the longer-term trade in the short-term for the counter move, then reversed back when it was over. 
As it stands, putting on that counter trade is like closing the long-term one and then re-opening at a better rate.
True, but i’d like to see just how many retail traders actually have the “balls” to do that and be proven to be correct 
True you are correct. but where is the fun in that lol. Who am I kidding I trade under fifo so I cant do that anyway 
Thats exactly what I mean thank you :35:… so based on your experience in that is it profitable … and please if you have charts that can explain more in steps please :51:…
I might have misunderstood the intention of those posts completely, but …
… in spot forex you can achieve that by simply using an OCO; place two pending orders above and below the current price, and the OCO will automatically cancel one if the other is triggered.
There is no associated cost either, as you’d have with Put or Call Options for futures, which might expire without benefit.
In regard of ‘professional traders’ simultaneously going long and short on the same pair, I agree with JohnLeonard:
Cheers,
P.
Yeah, and it’s fun, too, to have a swing position running and then switch to a lower timeframe to cash in on the ‘noise’ a bit.
Petrol money (or gas money, if you’re from the US). 
Cheers,
P.