Hedge As A Forex Market Risk Management
Many reasons and motives for someone to join the forex business. Especially as a forex trader, there are many reasons in the selection of the pair and its buy or sell decision. This is more due to technical use reasons and or the way they interpret fundamental data (economic data). Hedge has a complex meaning but also has a simple meaning.
Retail traders have short-term targets. This means they will trade like scalping. Trying to trade quickly (enter the market and exit quickly) by collecting short-term profits. Or a retail trader chooses to swing trading. It all depends on their choice.
Then what do you do as a retail trader, when trading with a different timeframe? One timeframe gives buy signal and the other timeframe gives sell signal with same pair. The answer is Hedging.
Hedging means to buy and sell with the same pair on one account. If each buy sell position has the same volume, it is called a full hedge.
For example, you do Buy EURUSD as much as 1 lot and Sell EURUSD 1 lot. Well here’s a full hedge. The value of your balance will not change, but your equity value will be reduced because of negative interest paid per day. If the overnight position will be exposed to interest. Buy and sell positions have different interest (there are negative interest, there are also positive interest) and usually negative interest always bigger.
If the volume of two opposite positions (buy and sell) is different alias is not the same, then this is called partial hedge. This means that the balance of your account will change according to the difference in lot volume.
For that, you can use this Hedge as part of your trading system. Hedge as part of risk management tool even in some brokers or countries, this is prohibited. Traders have many ways to get around this hedge ban that is to open a different broker account, hedge with different pairs and other tactics.