US Forex Brokers Allowing Hedging
In 2009, the NFA (National Futures Association) implemented a set of rules that essentially ban the use of forex hedging strategy in the United States. This rule is to be carried out by brokers which later disable the opening of two opposite positions for the same currency pair at the same time. The reasons are that hedging increases the customer's financial costs and generates significant potential for abuse.
In order to make hedging possible, the US forex traders are advised to get around the restriction by opening two accounts in the same broker or different ones, then open a short position in a currency pair on one of the accounts and long it on the other.
If you're not a US resident or a trader living in the USA but still want to trade in a broker from that country, you can choose one that has a global offering and open an account on their website that is specifically provided for global clients. You can expect such service from the brokers below.
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Direct hedging involves opening an order that buys one currency pair, such as GBP/USD, while simultaneously placing another trade to sell the same pair. This means that if the market goes against your first trade, you can still make money from the second trade without having to close the first one.
However, it's worth mentioning that some brokers don't allow traders to take direct hedging in the same account.
Continue Reading at Why Is Hedging Not Allowed in Some Countries?
How to avoid short squeeze risks with hedging?
Hedging is a strategy that can remove uncertainty in investing to a greater extent. In addition, this strategy can protect your profits and reduce losses in the event of a crash or price correction. For example, a buy order to counter a losing sell position would count as hedging.
Hedging may seem counterintuitive as it is essentially entering a position opposite to the current position. However, this strategy reduces the level of risk due to price movements that can harm traders when buying shares. If your one order encounters unexpected loss due to a short squeeze, the other one would likely be still in position.
Continue Reading at Short Squeeze: How It Happens and What to Do
What is hedging strategy useful for?
You can use hedging strategies to limit losses or lock in profits on short-term currency movements. Hedging strategies can reduce risk and exposure to market fluctuations, but they can also increase profits if properly executed.
Continue Reading at Top 3 Forex Micro Account Strategies
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?
