Hedging is the practice of limiting the total portfolio risk by utilizing counter trading strategies of existing trades. It is the way to reduce the high amounts of loss than can happen when the unexpected happens. There are many forex hedging strategies available.
- Direct Hedging: It is the practice of placing trades that buys and sells same currency pair at same time. The trader can profit from the market by carefully adjusting the position closing timing. As sounds, the strategy is a poor hedging strategy with low expected return and can only be practiced when there is very high uncertainty in the market or the price show rapid ups and downs.
- Multiple Pair Hedging: This is the practice of trading two or more related currency pairs at same time. If two pairs are used, then they should be in opposite co-relation that is if once price fall, other should rise. Some forex hedging strategies can include many different currency pairs and needs advanced fore trading systems.
- Forex Options: They are the most followed and effective forex trading hedging tools. The strike and put options are widely used by forex traders to hedge their forex positions. More over, traders can utilize a number of different options trading strategies to magnify their profits or limit their risks.
Forex hedge traders can be part of very active forex trading strategies and are not merely loss-minimization strategies. In fact hedging allows traders to take more risks in positions when needed. Not all forex trading brokers
favor hedge strategies, so you should choose wise.
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