You may have heard of somebody talking about hedging in forex and don’t get the wrong idea it is nothing like a hedge fund. There are many strategies and a lot of power professional traders use hedging. Even though I don’t hedge myself like these guys (I will discuss later on how I hedge), it is still a profitable strategy.
So what does hedging mean in forex? Hedging is simply protecting yourself against a big loss by places both buy and sell trades simultaneously until the move takes off in the direction you were indicating. This is only one way but is also known as direct hedging.
There are a lot of other ways to hedge as well and all can be successful if you want to dig deep into it. There are some areas of the world including the U.S. that does not allow hedging if you use a regulated broker.
Hedging In Forex
The way we talked about hedging above is simple hedging. So with most all brokers outside the U.S. you can simple hit buy & sell quickly with your correct lots size. Some traders simply do this on a simple support and resistance line because most of the time a trade will do two things reverse or pass and check the support to continue on. The other thing it might do is consolidate which is basically a no-win situation. Once it either takes off or rejects and reverses you close one of the trades. You do have to time this just right when you go to close a trade and that can take time (demoing) to get down.
Another way of hedging is doing it with different currency pairs. So you could go short on USDCHF and go long on EURUSD. This still exposes you to the CHF and EUR markets that could be completely different or the same as well. I personally would never do this as I don’t believe it limits your risk enough and hedging should be for that purpose.
Many traders consider hedging a double-edged sword because you can make profit and protect your account at the same time. If you have taken a number of forex trades you can see that sometimes you are in profit right away and all goes well. Other times you place a trade right when all confirmations line up and it does exactly the opposite. Both of these cases hedging can help you if it is done right.
And you know who doesn’t want to be overexposed in the markets. I don’t think hedging is for beginners as you should have a lot of strategies in your arsenal before you take the dive but that is just my opinion. So take your time work your way up to this if you are just starting out and you will be just fine.
Hedging In The New Paradigm
Hedging in the new paradigm of trading is different. I won’t go into details as you need a lot more training in order to do this so I would suggest you join Steve Gregors facebook community by going HERE and then you also get a free membership.
So normal hedging you buy/sell at the same time when you enter a trade which is fine. In the new paradigm you already get a precise entry so you don’t have any need to hedge.
With any market it doesn’t normally just go straight up or straight down. There is going to be what is call pullbacks. Those pullbacks can and will cut into your profits at times.
So you have plenty of options when you reach a pullback in a trade here are some:
- Just ride it out with your original trade and look for the continuation of the trend.
- You can simply close your trade and call it a day
- Or you can hedge
If you choose to hedge you aren’t looking to limit your exposure you are looking to make more money off the pullback while keeping your original trade open. You are pretty much just riding the waves. A lot of big moves will have tons of pullbacks and this is where you can take advantage of precise entries and make 10-20X the amount of old paradigm traders.
I am not trying to see just placing a long term trade and letting it right to a certain take profit point is bad. I will also look to take those trades as well just depending on my schedule and what I have going on for the week.
But if you have the time you can make a lot more pips on the pullbacks which builds your ROI that much quicker so why not. If this is overwhelming that is okay as I stated look to get into the facebook and go through those videos slowly. Take your time and get it right the first time with learning to trade forex and it will be life changing.
Also remember that most shortcuts lead to a much longer road when it comes to learning something new. Afterall you can demo as much as you want and make as many mistakes without losing money. You need to learn what not to do before you succeed.
Related Questions:
How Does Hedging Work In Forex?
Whatever strategy you are using when you go to enter the trade you will enter both a buy and sell usually until one takes of then you either set a stop loss for one or completely close it. It is a way to get into a trade and not have close to zero exposure.
Is Hedging Allowed In Forex?
It is allowed almost everywhere. Check your local regulations here in the states it is not allowed with regulated brokers.
What Does Hedging A Currency Mean?
For a currency like EURUSD you are both buying and selling it at the same time.
Forex Hedging Techniques
What Is The Definition of Hedging? Well the dictionary states it is to limit or qualify. You can hedge a lot of things like predictions just like with forex.
