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Forex Trading - Hedging!!!
#1
One of the ways to protect your account when trading Forex is to use the hedging trading Technic. A transaction implemented by a Forex trader to protect an existing or anticipated position from an unwanted move in exchange rates is called a Forex hedge. Think of a hedge as getting insurance on your trade. Hedging is a way to reduce the amount of loss you would incur if something unexpected happened.
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#2
As much as hedging having advantage it also involve huge cost and expenses that can eat away big part of your profits and so to be successful in hedging you need to fund your trade and you have to be patient enough to enjoy your profit.
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#3
Hedging its way to stop big loss on certain unexpected moves within same currency pair
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#4
Hedging, it's a transaction implemented by a forex trader to control an existing or upcoming position from an sudden move in exchange prices. a trader who is long a foreign currency pair can be saved from bearish risk, while the trader who is short a foreign currency pair can save against bullish risk.
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#5
Hedging is simply coming up with a way to protect yourself against big loss. Hedging is a way to reduce the amount of loss you would incur if something unexpected happened or from Opposite market move. Think of a hedge as getting insurance on your trade. 

Simple Hedging
Some brokers allow you to make trades that are direct hedges. Direct hedging is when you are allowed to place a trade  that buys a currency pair (EURUSD) and then at the same time you can place a trade to sell the same EURUSD pair.

While the net profit is zero while you have both trades open, you can make more money without incurring additional risk if you time the market just right.

The way a simple forex hedge protects you is that it allows you to trade the opposite direction of your initial trade without having to close that initial trade. It can be argued that it makes more sense to close the initial trade for a loss and place a new trade in a better spot. This is part of trader discretion.

As a trader, you certainly could close your initial trade and enter the market at a better price. The advantage of using the hedge is that you can keep your trade on the market and make money with a second trade that makes profit as the market moves against your first position. When you suspect the market is going to reverse and go back in your initial trades favor, you can set a stop on the hedging trade, or just close it.

Complex Hedging:
There are many methods for complex hedging of forex trades.

Many brokers do not allow traders to take directly hedged positions in the same account so other approaches are necessary.

Multiple Currency Pairs
A forex trader can make a hedge against a particular currency by using two different currency pairs. For example, you could go long USDCHF and short EURUSD

In this case, it wouldn't be exact but you would be hedging your USD exposure. The only issue with hedging this way is you are exposed to fluctuations in the Euro (EUR) and the Swiss(CHF).

This means if the Euro becomes a strong currency against all other currencies, there could be a fluctuation in EUR/USD that is not counter acted in USD/CHF. This is generally not a reliable way to hedge unless you are building a complicated hedge that takes many currency pairs into account.

Forex Options
A forex option is an agreement to conduct an exchange at a specified price in the future. For example, say you place a long trade on EUR/USD at 1.30. To protect that position you place a forex strike option at 1.29.

What this means is if the EUR/USD falls to 1.29 within the time specified for your option, you get paid out on that option. How much you get paid depends on market conditions when you buy the option and the size of the option. If the EUR/USD does not reach that price in the specified time, you lose only the purchase price of the option. The farther away from the market price your option at the time of purchase, the bigger the payout will be if the price is hit within the specified time.

Reasons to Hedge
The main reason that you want to use hedging on your trades is to limit risk. Hedging can be a bigger part of your trading plan if done carefully. It should only be used by experienced traders that understand market swings and timing. Playing with hedging without adequate trading experience could be a disaster for your account.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
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