How Can Hedging Be Effectively Applied in Trading Forex?
My little knowledge about hedging is the trading of the same pair in opposite positions.
Please your answers would be highly appreciated.
Please read this: What Is Hedging in Forex and Is It Really Risk Free?
Ok thanks for your rapid response
Many Forex brokers platforms have pairs currencies you can easily select any of them for trading.
Hedging is commonly used to protect value in conventional business. For example, India’s electrical company has a foreign debt denoted in US dollars (USD). But it’s revenue from selling electrical service is in Indian rupee (INR). The company hedges its debt by holding USD currency to avoid the fluctuation of its debt due to the decline of INR value against the USD.
In forex, hedging is commonly used to protect a position from a sudden market move. In this way, the trader opens the opposite position from his current open position. This kind of hedging is called “perfect hedging” since it completely mitigates the risk of adverse market movement.
Definitely need to know what you are doing with hedging – a firm grasp of the markets is certainly required otherwise all you’ll be doing is doubling your losses and blowing your account. I personally steer clear of it -if Im not confident in my bias and trade I dont trade.
Hedging in forex works like this, lets say you open position on EUR/USD of one lot size of buy or long and it goes against you,you open another order in opposite direction of inversely correlated currency pair ,this would be USD/CHF . However you have to be careful ,you may double your risk.It is not always correct.
Thanks for your answers so far. Hedging is not good in forex neither is it good in sport betting. Through hedging, the trader tends to lose money consistently until he/she blows up the account.
Hey, I wasn’t aware that ” hedging” works in forex trading too. I thought that it works in investment consultancy funds only.