Maybe you didn't get my point, there is a broker not allow to use hedging, commonly broker that regulated in NFA, the broker restricted to open buy and sell in one account. And I talk about scalping, there is a broker they have rules to restricted scalping trading. One reason is will make heavy trading server.
For Forex hedging, as some already stated, forget about taking the opposite position on the same FX pair and calling it an hedge. You are just locking a loss, or a gain. What many call hedging in Forex, it's actually the opposite order, in other markets a close order. One thing is hedging FX with other correlated pairs, futures, future options... Another thing is the opposite trade. That's just some mt4 nonsense to lock and delay a loss.
Its a simple thing, buying something and selling it simultaneously, just to be on a safer side, but it is not as simple as it seems.
@yana hansen hahah i guess what he is trying to say is that its a strategy that is used to safeguard a trader’s position in a currency pair from news or events that may trigger volatility in the forex market. Basically Hedging is referred to as a short term safety strategy that is used by traders especially when there is a major news breakout to avoid losses.
Well hedging can have a different meaning with respect to different trader/markets, In forex it means having a buy and a sell positions on the same chart thus holding both sides of the stick and cutting the one short which goes into a loss, In stocks it could mean the same where you buy a stock and take out partial profits and then short the future so incase you are taken out of the long you still have a short position running.
In forex hedging strategy can be applied using the correlation between pair, there are some pair has positive and negative correlation, let say EURUSD and EURJPY, both almost similar movement, although not exactly right, but often when EURUSD bullish, hence EURJPY also bullish, a trader may use buy EURUSD and sell EURJPY to make hedging correlation pairs
Hedging means entering in a position to mitigate risk from some other positions. Like if you will need dollars in 3 months you can lock exchange rate by entering into a futures contract. However you will lose opportunity to benefit from a favourable exchange rate move.
Basically, hedging is all about securing your risks. When you open a deal there is always a risk that everything can go opposite from your expectations. In such cases traders tend to open the deals which have negative correlation with the opened one. So, that is the thing that when your main deal fails, your hedge deal wins. Hedging makes a win-win situation. However, I have never met any strict correlations on the market. I mean that if first asset fails 1%, your hedging asset can grow only on 0.5% or more, so nothing is sure on the markets.