Hedging Trading Strategy
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Anything that maximizes the profit for a trader is welcomed with open arms, and that’s why forex trading is gaining momentum each passing day. Financial traders try everything possible to limit their risks while increasing the chances of winning.
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There are several ways (you can say strategies, yes) of trading forex, but the most potent and viable approach to trade is hedging. This is one of the strategies as a trader you can’t afford to have.
4
Payment methods
Trading platforms
Regulated by
Support
Min.Deposit
Leverage max
Currency Pairs
Classification
Mobile App
Min.Deposit
$100
Spread min.
Variables pips
Leverage max
100
Currency Pairs
40
Trading platforms
Funding Methods
Regulated by
FCA
What you can trade
Forex
Indices
Actions
Cryptocurrencies
Raw Materials
Average spread
EUR/GBP
-
EUR/USD
-
EUR/JPY
0.3
EUR/CHF
0.2
GBP/USD
0.0
GBP/JPY
0.1
GBP/CHF
0.3
USD/JPY
0.0
USD/CHF
0.2
CHF/JPY
0.3
Additional Fee
Continuous rate
Variables
Conversión
Variables pips
Regulation
Yes
FCA
No
CYSEC
No
ASIC
No
CFTC
No
NFA
No
BAFIN
No
CMA
No
SCB
No
DFSA
No
CBFSAI
No
BVIFSC
No
FSCA
No
FSA
No
FFAJ
No
ADGM
No
FRSA
71% of retail investor accounts lose money when trading CFDs with this provider.
Min.Deposit
$100
Spread min.
- pips
Leverage max
400
Currency Pairs
50
Trading platforms
Funding Methods
Regulated by
CYSECASICCBFSAIBVIFSCFSCAFSAFFAJADGMFRSA
What you can trade
Forex
Indices
Actions
Cryptocurrencies
Raw Materials
Etfs
Average spread
EUR/GBP
1
EUR/USD
0.9
EUR/JPY
1
EUR/CHF
1
GBP/USD
1
GBP/JPY
1
GBP/CHF
1
USD/JPY
1
USD/CHF
1
CHF/JPY
1
Additional Fee
Continuous rate
-
Conversión
- pips
Regulation
No
FCA
Yes
CYSEC
Yes
ASIC
No
CFTC
No
NFA
No
BAFIN
No
CMA
No
SCB
No
DFSA
Yes
CBFSAI
Yes
BVIFSC
Yes
FSCA
Yes
FSA
Yes
FFAJ
Yes
ADGM
Yes
FRSA
71% of retail investor accounts lose money when trading CFDs with this provider.
Min.Deposit
$10
Spread min.
- pips
Leverage max
10
Currency Pairs
60
Trading platforms
Funding Methods
What you can trade
Forex
Indices
Cryptocurrencies
Average spread
EUR/GBP
1
EUR/USD
1
EUR/JPY
1
EUR/CHF
1
GBP/USD
1
GBP/JPY
1
GBP/CHF
1
USD/JPY
1
USD/CHF
1
CHF/JPY
1
Additional Fee
Continuous rate
-
Conversión
- pips
Regulation
No
FCA
No
CYSEC
No
ASIC
No
CFTC
No
NFA
No
BAFIN
No
CMA
No
SCB
No
DFSA
No
CBFSAI
No
BVIFSC
No
FSCA
No
FSA
No
FFAJ
No
ADGM
No
FRSA
Your capital is at risk.
Min.Deposit
$50
Spread min.
- pips
Leverage max
500
Currency Pairs
40
Trading platforms
Funding Methods
What you can trade
Forex
Indices
Actions
Raw Materials
Average spread
EUR/GBP
-
EUR/USD
-
EUR/JPY
-
EUR/CHF
-
GBP/USD
-
GBP/JPY
-
GBP/CHF
-
USD/JPY
-
USD/CHF
-
CHF/JPY
-
Additional Fee
Continuous rate
-
Conversión
- pips
Regulation
No
FCA
No
CYSEC
No
ASIC
No
CFTC
No
NFA
No
BAFIN
No
CMA
No
SCB
No
DFSA
No
CBFSAI
No
BVIFSC
No
FSCA
No
FSA
No
FFAJ
No
ADGM
No
FRSA
71% of retail investor accounts lose money when trading CFDs with this provider.
But, what’s a Hedging Strategy?
First of all, to “hedge” is buying and selling two different instruments within a brief period. Hedging merely is mitigating the risk. It’s the position as a trader you can take to reduce exposure to the price movements.
There are several hedging strategies designed to minimize risks of the price movements against a particular open trade. For instance, if you smell a stock market crash or you want to protect your trades from the uncertainty of the market, the hedging strategies are at your disposal to give some peace of mind.
So, what are some of the hedging strategies?
Using Multiple Currencies to Hedge
When buying a currency, it’s always about buying one currency while selling the other. On the other hand, when selling, it’s about selling the first currency while buying the other. For instance, if you want to apply the hedging strategy, say you buy the USD/JPY, then you’ll need to buy also the EUR/USD.
In essence, you’re buying EUR/JPY as the USD cancels each other. To hedge the trade, you sell the EUR/JPY with the transactions forming a hedge. The reason being, on the EUR you both have a sell and a buy, similar to the USD and the YEN.
However, you should note the tricks that, on such hedging strategy, ensure to buy and sell those transactions which cancel each other.
Hedging Strategy Using Two Currency Pairs
As a forex trader, hedging strategies are unlimited. However, it’s essential that you first understand the relationship between the prices of various currency pairs.
Using two distinct currency pairs, which either have a negative relationship or positive correlation can help establish a hedge position. For example, if the EUR/USD has a negative correlation with the USD/JPY, it means you can go long EUR/USD and short on USD/JPY hedging your USD exposure.
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Therefore, it means that if your EUR strengthens well against all the other currencies, you have a scenario whereby the move in the EUR/USD isn’t counteracted in the USD/JPY.
In conclusion, it should be clear that hedging isn’t a strategy that you can use to predict the way that a particular pair will go. Instead, it’s a method to utilize the prevailing market dynamics so that you can maximize the profits. Once hedging is done in the right way, it’s almost a guarantee that you’ll never lose that trade again.