This may be true with certain brokers. With FXCM the margin is returned to you. There is no margin requirement if you are short and long on the same instrument. This is precisely why I like it. In theory, you can enter a much larger position. If you set a traditional stop, and the price changes quickly, it will blast right through your stop and possibly cause a margin call, closing you out of your position and realizing a much bigger than intended loss. If you instead hedge, in theory, the counter position will be opened. There may be some slippage, but not as bad as a completely missed stop.
bhardy: no offend question., are you new to trading? do you ever trade in real broker account and profitable? or you just play small money in the snake oil bucket shop (spread betting ) ??
You obviously have a lot to learn about stop placement. You place your stop such that it is the only place where a stop could be correctly placed for that trade. If it gets hit, you know you were wrong.
Snake oil bucket shop? I really don't know what that is supposed to mean. Oh, I get it now. FXCM is a bucket shop. Is that your excuse? Come on you can do better than that! If you have done your homework, you already know that I trade with about $4000. I guess this places me among the 5% of active Elite Trader members who actually trade with real money. How about you? Do you trade with real money? I place the odds on this at about 5%. No offense intended, of course.
Yeah, shame on you for not doing your homework and finding out much people are trading with!!! This "method" of "hedging" is a load of bollocks. End of.
Wow, are you two insulting me? Given that 95% of you are failures, I guess I should only be a weenie, teenie bit insulted by this. Go stick it where the "son" don't shine! And what do you guys trade with, $1,000,000 on a demo account?
Mr. Bhardy - A lot of us in here try to help you but you choose to ignore. There is no edge by using "hedge". I hope you grap this concept before you loss all your little 4K. The only way retail trader can make money is if he can predict the market correctly - up, down or sideway (using theta trade or scalp) I never trade in bucket shops, the bucket shops platform are too expensive to trade (look at the spread) and full of scum (you can easily figure this up yourself if you have a real broker account). Over the year I saw too many of newbies come in and trade with account less than 5K, and 95% of them disappear after 1-2 years. Previously most of them stick with online broker but now seemed most of them prefer bucket shops, not sure why, may be it is more easy for them to open an account in those bucket shop, or they been cheated by their "paid" mentors telling them this is a better way to trade ( those mentor may get rebate from those snake oil bucket shop) . Some tips to you : All the mentors that required you to pay to learn from them is just a sales man that sell you something that are not wroking, if it is working, they will not sell to you. The only time a mentor will coach is when he either like you and will teach you without any cost, or you are his son/close relatives, or he need you to help him during trading such as you work for him. I learn the trading not from any mentor, I am fortunate to join the "biggest" and "evilest" firm (you may be able to guess who are them) after I completes my PhD, over that three years I learn to trade from them and save some money as my capital mainly from the big bonus (those crazy years). I left the firm and used those cash to start my trading and since them I never need to depend on any employers anymore. In general, you are consider super tarder if you can make 30% a year ( I admit I only make 20% in average), and if you need at leat 200K to sustain your life style, you neet at least a million cash in hand and without any other commitment (mortgage, family and etc). Your 4K will gone in a blink. Get a job and try to save more money, 4K (even with 40% return a year) will not bring you to a million. Am I trading with 100K paper money ? In my account in TOS (I have three different broker accounts, divided roughly 40/40/20 so that the brokers will not figure out my strategy forever.), my option commision is only $1 and my future trade is only $2 ($4 round trip), I can trade 50 cars without trigger any margin (I never even bother to ask TOS to reduce my margin in my future), never even worry about PDT and etc. You can ring TOS and check from them how much money you need to have inside your account before you have those "privilege"? Just to let you know, my account size still consider just a "mid size" vs a other "full size" and "super size" tarders in this board. Are me & the OP trade in real money? You guess. If the CL change by a dollar each time, we are actually making or losing more than 2 times of your little 4K. This is only our "normal" oil trade in normal day, in high volatility day, the amount we bet are 3-4 times more than this.
The difficulty I have with many of you who reply is that your response is incredibly condescending. I'm sorry, but I have great difficulty taking advice from such individuals. You've made my point with your last paragraph. If you are what you say you are, then you should have great humility. Otherwise, you will eventually lose what you have. In that case, what value is your advice. Unfortunately, many of you behave like you have real attitude problem. I am actively trying to learn by being active on this forum, by being open and honest with you and with myself. Please take any further condescending nonesense and stuff it!
There is no edge by using "hedge". I acknowledged this many many posts ago, but you and others keep pushing this same issue. I realized this soon after I opened this thread. I repeat: it is nothing but a different way of handling a stop or limit. This difference may be an advantage for certain personalities, but I realize it isn't an edge. Also, your concept of scale is incorrect. The approach that you use with 1 million is completely different from the approach one uses with $4000. Why? Because, $4000 is quickly replaceable. $1 million, for most, is not replaceable.