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Forex Hedging

HEDGING FOREX 

 

A. Hedging in General

 

Hedging in general is an investing strategy that creates an offsetting position of a particular trade in order to reduce or even to eliminate trading risk. Hedging helps traders to protect against high losses. Hedging is costing money, so it eliminates risk but at the same time it reduces the profit potential. Hedging in a way is like purchasing insurance against an unexpected future price movement. 

 

What is Forex Hedging?

 
Forex hedging is used by traders to reduce their Foreign Exchange Risk when dealing in the market. By implementing a hedging strategy, a Forex trader that holds a long position in a currency pair, can be protected from downside risk, while a Forex trader that holds a short position in a currency pair, can be protected against the upside risk.

 

Direct Forex Hedge Order

Many Forex Brokers are providing the option to place a Direct Hedge Order. That means that you are able to buy a Forex currency pair and at the same time to sell the same Forex currency pair. Profit can be made by picking the right timing to buy and sell. If your Broker doeasn’t allow direct hedging some other methods of complex hedging may be used having the same results. But complexity means more time, and time is money. So direct hedging is an offering advantage and that is why a Direct Hedging option is weighed (1%) in OnlineForex.biz Rating Formula.

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