Brokers For Hedging Strategy
Hedging is when you open two trades in the same pair, which is equally sized but in opposite directions. Hedging, at least in theory, negates the need to set a hard stop loss on either long or short trades being hedged. The advantage of hedging is when the markets (especially Forex markets) tend to range most of the time, it can be possible to profit just from high volatility within a range by closing the long trade at a peak and the short trade at a trough.
Many brokers do not allow hedging, but some do. Brokers that allow hedging give traders the flexibility to buy and sell at once. By here, you will find some forex brokers that allow hedging for their clients.
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How do we determine at which level to put pending order in hedging?
Since hedging can be aimed as an alternative to stop loss, consider to place the pending order using the same method you use to determine stop loss.
Still, the psychological dilemma presented by using hedging as a stop loss is still there. It is suggested not to place Target Profit (TP) during hedging. Of course, there is another consequence: we have to stand by and patiently monitor the chart; when we feel the trend started to turn back, close the position that is in profit. If later it appears that the trend goes forward again, then open another hedging position, and so on. It means we will lose some spread, but it will feel better because we are able to take advantage of the price movement.
Continue Reading at Using Hedging As Stop Loss Alternative
Does CFTC allows hedging strategy?
No. In the US, the NFA and CFTC prohibit the use of certain trading strategies such as hedging.
The First In First Out (FIFO) rule basically means that traders have to close a trade position before they get to open a new position in the same currency pair, hence prohibit the act of hedging.
Continue Reading at Why Are US Clients Not Accepted in Many Forex Brokers?
How to hedge multiple currency pairs?
In this case, it's important to figure out the correlations between different currency pairs and choose the ones that are highly correlated, either positively or negatively. A positive correlation means that two pairs tend to move together in the same direction, while a negative correlation happens if two pairs tend to move in opposite ways.
For example, the GBP/USD and EUR/GBP are negatively correlated. Therefore, if you buy on one pair and sell on the other, you're going to create a hedge. Most brokers typically allow this method because it involves opening two positions in different currency pairs. The only issue with this type of hedging is that it can be more complicated and you'll be exposed to the fluctuations of both pairs.
Continue Reading at Why Is Hedging Not Allowed in Some Countries?
Are US traders absolutely unable to practice hedging?
No, they're not. Some traders apparently managed to find a gap in this rule. US traders can either hedge with different currency pairs or choose to trade with offshore brokers.
Continue Reading at Why Is Hedging Not Allowed in Some Countries?
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