Hedging is the one of the best techniques available to the forex traders to minimize the risks. In hedging traders are usually using derivatives i.e. they enter into contacts to lock a position in the forex market. A trader enters into simultaneous buying and selling position of a currency pair so that can eliminate the risks of losing money completely. If he earns profit in buying order consequently he will definitely lose money in selling order. Thereby his net profit will be zero i.e. risk is zero.
I disagree, overall. There are circumstances under which it can be, for some (a small minority) but it's so widely misused by "aspiring forex traders" (who make up - in terms of population though not volume, obviously - the bulk of the market participants, and who have so little idea what they're doing) that I think the statement above "deserves to be challenged"! In my opinion, most forex traders who are trying to "hedge" are simply increasing their dealing costs without actually reducing their risk at all. Mostly because ill-informed, inexperienced, losing traders have misunderstood it - and are typically destined to continue to do so, partly because of what they read about the subject in trading forums, most of which is nonsense. Just my skepchick perspective.
Learning to read the price movement is the best hedge you can ever have. That may not fit the exact definition of a hedge, but it's all you'll ever need!!
People involved in growing the trading business sector promote the universal use of tactics like hedging etc. under the banner that they all reduce risk. Which they can potentially do but only in very tightly defined circumstances. What these characters actually want to happen is that their readers / viewers / students don't lose QUICKLY. These techniques almost guarantee the beginner trader will lose. But at least nobody will finish a book / course and come back broke and angry 24 hours later. So, effectively there are no dissatisfied customers, there's no come-back, no arguments over re-funds. It will be months before the majority of them come to a realisation.
Probably the best simple explanation of "why spot forex traders shouldn't try to hedge" that I've seen in a trading forum.
Try the word compounding investments and see what this bring to mind - Hedging means the same thing it is because you are either new to Forex or that you brains are at a younger stage that you are thinking that Hedging involve both buying and selling into the a position at the same time - It is not a market prediction that works Bro you are simply explaining the Hedging Term incorrectly. If you were to buy & sell at the same time you will still lose your investment because you are required to pay an interest fee on the sell side of the position will result in - Just owning your broker a few quid more in which the broker would be more than greatfull for I would have thought. Check it Out.
Hedging Bets - Is most widely used as In Means of Compounding Interest - Within the directional trade itself - Say you were to Buy long and applied an adequate Resistance Level to the long Position - Than one would simply Expect some Concildation at this Area - And then re-enter at Buying into the next available Low Support Level – By way of Compounding the already existing Position - I like to say it like this Quote: Peter Matthew Matty "If Confidence remains within the ongoing Bull Market & Continues to Gain Momentum - Than it must translate into more optimism surrounding the Outlook for The Emerging Market.- By extension the Market Moves Up.