I have read a post in one of the forums and i paste it here to hear the opinion of ETs if they are interested to share. chaffcombe Avatar Image Senior Member Member # 1145 Member Rated: 5 Icon 1 posted October 24, 2003 08:38 PM Profile for ~chaffcombe Edit/Delete Post Reply With Quote I'm going to stick my neck out on this one. While Qetu is absolutely right, in general hedging trades makes no sense at all. As fx traders we make our money by gaining exposure to the market. Quite simply, that is what we do! Any opposing trade(s) justs reduces our exposure, while increasing our spread cost. As with anything, there may be some occasions when you may want to do go against the pervasive logic, but these should be few and far between - for example my home currency is AUD, so I have a permanent hedge in place to protect my AUD imvestment at OANDA, which is held in USD. Likewise you may find it convenient to have opposing trades when you trade both long term and short term systems in the same currency pair, or different trading ideas for the same pair, but you pay for this luxury, with decreased overall exposure and increased costs. It's far more cost effective to net your trades, but that takes a little more work. A manufacturer can hedge their overseas currency exposure, but as f/x traders we cannot hedge our ultimate exposure, because that's how we get paid! At any given moment we have to decide the total amount of exposure we wish to have, and produce this position as efficiently as possible. Consider, a net position of zero produces no P/L no matter how much it costs to set up! Even Options are not a panacea, but let's not get into that! In a nutshell, we are in a risk business, and we manage that risk by determining the size of our net exposure, relative to our account size, while keeping costs to a minimum. Anyway, it'll be interesting to see who agrees and disagrees with me! Good trading ~chaffcombe [This message has been edited by ~chaffcombe (edited October 25, 2003).]
To make real money, most of us have to make correct and unhedged bets on direction. Hedging plays should be for short term risk control only.