Now it is my turn to say, "what is the difference?" A hedge instead of a stop/limit is nothing but floating position with a locked in loss/profit equal to your stop/limit. The difference is when you release that lock. Ideally, you want to unlock it when it may be to your advantage. Either way you are entering two positions because it floats until you release one branch. The result is a brand new trade. Release both branches at the same time and you realize your original loss/profit. Release at different times and you open a brand new trade. There is no increase in fees. This is false!! Actually, there is an increase in fees if your release both branches at the same time.
Also, what some of you so called experts who are against hedging don't seem to get is that there are actually three places where you can be wrong: entry, stop and limit. The hedge actually is an acknowledgement and a predetermined plan for all three: condition for simultaneous exit of branches, condition for exit of short, condition for exit of long. When you instead simply force yourself to take your stop or limit, you are stating that your stop/limit is correct when in reality your stop/limit could be incorrect.
oh the irony!! While I was playing with my hedging I closed a very strong position that had me shorting the usdollar cfd and long on xau/usd. Boy am I every kicking myself right now!!
Does the instrument that you are using for hedging have to be entirely uncorrelated to the underlying instrument that you are hedging against? Thus such hedging would require the trader to be apt at performing intra / inter market analysis to find uncorrelated instruments to trade and hedge?
Perfect negative correlation would produce a zero net result which is why going long and short on the same instrument is pointless except in certain restricted cicumstances. No, you don't need to find uncorrelated instruments. You can actually use correlated instruments going long on one and short on the other. Anyway, maybe the experts will chime in and give you a better answer.
I have been playing with for a while now. I actually like this approach much better than the traditional stop. There is a flow to it, and, as one person said in an earlier post, there is less slippage. For me, closing a position requires less effort than opening a position. That's where the flow comes in. I simple wait for the price I want, and close the branch. Exactly the same as opening a new trade. For whatever reason, it is easier for me. And no, I repeat, no extra fees! The only time you get extra fees is when you close both branches at the same time. You do have to be a little more aware of where your starting point is however. You start from a net value, x, however your open branch may have a negative number. So profit is realized through the change in price and not realized explicitly with a positive number.
I can't see how you make money from this, all you would do is lock in loads of losses. Say you sell crude at 10000. It goes up instead and you buy at 10100. The market now goes to 10200. You exit the long position, making 100 ticks on that. The market now goes to 103. You are losing 300 t on the short. What do you do now? Wait for the market to go down? Suppose it doesn't and goes to 11000?
Please, read my previous post. All it is in the end is a different way of exiting one trade and entering another. There is no net loss or gain. At best there is a reduction in slippage and in my case an improved flow in my trading. However, apparently, another poster pointed out that you can use this in conjunction with options to produce a profitable result. My trading skills are not yet sophisticated enough to exploit this.