Brokers For Hedging Strategy
Hedging is when you open two trades in the same pair, which is equally sized but in opposite directions. Hedging, at least in theory, negates the need to set a hard stop loss on either long or short trades being hedged. The advantage of hedging is when the markets (especially Forex markets) tend to range most of the time, it can be possible to profit just from high volatility within a range by closing the long trade at a peak and the short trade at a trough.
Many brokers do not allow hedging, but some do. Brokers that allow hedging give traders the flexibility to buy and sell at once. By here, you will find some forex brokers that allow hedging for their clients.
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What is the risk of hedging different currency pairs?
Inter-pair correlation changes occasionally. For example, USD/JPY and AUD/USD could have a high negative correlation, but they might change in the next day or week. The correlation might weaken or turn fifty-fifty.
Continue Reading at Introduction to Forex Hedging Strategy
Direct hedging involves opening an order that buys one currency pair, such as GBP/USD, while simultaneously placing another trade to sell the same pair. This means that if the market goes against your first trade, you can still make money from the second trade without having to close the first one.
However, it's worth mentioning that some brokers don't allow traders to take direct hedging in the same account.
Continue Reading at Why Is Hedging Not Allowed in Some Countries?
How to hedge multiple currency pairs?
In this case, it's important to figure out the correlations between different currency pairs and choose the ones that are highly correlated, either positively or negatively. A positive correlation means that two pairs tend to move together in the same direction, while a negative correlation happens if two pairs tend to move in opposite ways.
For example, the GBP/USD and EUR/GBP are negatively correlated. Therefore, if you buy on one pair and sell on the other, you're going to create a hedge. Most brokers typically allow this method because it involves opening two positions in different currency pairs. The only issue with this type of hedging is that it can be more complicated and you'll be exposed to the fluctuations of both pairs.
Continue Reading at Why Is Hedging Not Allowed in Some Countries?
Is hedging still profitable and worth the effort?
It probably depends on your skill and expertise. If you can manage it well, hedging offers a great risk management system as it's able to minimize your potential loss and even make it break even during unexpected market turnovers. However, keep in mind that hedging is certainly not free of risk. It could cost you a double loss if you're not careful about entering and exiting the market at the right time.
Continue Reading at Why Is Hedging Not Allowed in Some Countries?
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