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How to actually use hedge in FX trading?

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  • How to actually use hedge in FX trading?

    Hi all,

    I've recently opened MT4 account with PFGBest broker
    and discovered, that this broker offers limited (up to 4pm EST time) hedge,
    i.e. - you are allowed to go long and short on the same currency pair
    on the same time.

    I don't know much about such opportunity, but I've
    heard something, that hedge could be useful to use
    in everyday trading: if you enter long, trade goes against you,
    you may enter short, but what's then...

    Couldn't arrive to any idea, which makes sence,
    because if you have opened 2 trades in the opposite direction - yes
    your loses on long are offset by profits on short side,
    but at the end of the day - you have to close one of the
    trades and accumulate loss, you cannot arrive to profit.,
    plus spreads costs, plus commisions, cannot see any profit her.

    I'm confused.

    Could someone explain on example(s), how to use hedge
    properly or provide a link to ebook material.

  • #2
    Essentially Hedging is not useful unless you believe your original trade will correct itself shortly. If you enter long due to a S+R line or something of the sort, be it pivot or fib, and it continues past the line a bit, you could enter the trade short, hoping to make money on both sides of the trade. Steve Nison has a trading example he calls falling off of the roof that applies to this. Hedging typically is not a smart idea when using the same currency, however some can hedge using currency cross pairs and make money constantly doing so. I would not reccomend this unless you are well versed in reversal patterns, as an unexperienced hedge trade will always result with a negative bid (the market must go one way or another), or in worst case, both can be negative due to spread difference. Stay away initially until you become proficient.

    Sorry for the paragraph.

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    • #3
      I cannot really find any practical use for hedging, unless combined with martingale. I have never used hedging .

      I think if you had a genius application of hedging into a strategy it would be useful.

      A strategy for hedging could be to open a long and short trade. As one gets to a set pip profit increase the lot size and decrease the lot size of the hedged trade. Do this about twice and on the third close both positions. I just thought of this on the top of my head right now, so I don't know whether it will work.

      Chris

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