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Tips for Hedging in the Currency Market

Discussion in 'Forex Broker Discussion' started by adamsmiths, Oct 6, 2016.

  1. adamsmiths

    adamsmiths New Member

    Mar 22, 2016
    Likes Received:
    There are certain tools that people make use of in the market, while attempting to shield themselves from future price fluctuations in the foreign exchange (currency market) market or the commodity market. Two of these are ‘hedging’ and ‘speculation’, the former of which we’re going to discuss here. Hedging in foreign exchange trading, when defined in a straightforward manner, defines the act of executing calculated moves to ensure that a current or anticipated position in the forex market is not threatened by unpredictable movements in the live currency rates application of a particular currency pair. A few of the most prominent tools in this regard are – exercising foreign currency options and spot contracting. Now, before you decide to plunge into the practise of hedging, there are certain things that you need to remember:

    1. Hedging is a Strict ‘no-no’ for Newbies and Amateurs

    This is something that needs to be mentioned right at the outset: Hedging is not meant for people new to the trade. Therefore, if you are a beginner, then you should resist the lure of trying your hand at hedging. As a newbie, you should take your time to get used to the ways of the forex-land.

    2. Call Your Broker for a Meeting

    Quite a lot of brokers out there in the forex market do not allow their clients to engage in hedging. Therefore, in order to gain permission to go ahead and put your hedging plans to use, you should make sure that your broker is permissive of the fact that you want to begin hedging.

    3. Make Arrangements for Automatic Execution

    You are required to make automatic executions when you enter the field of hedging. Before starting hedging, make sure that you know all the tools of automatic execution by heart.

    4. Be Mindful of the Timing

    Hedging seems to function fairly well when the market shows a sideways movement i.e., the movements are limited to mostly the present range. Therefore, it is essential to keep a tab on the timing, and make wise use of the method.

    5. The Pip Range Chosen Should be Wide

    Always make sure to bear in mind that you need to pay a certain amount of your profit as commission to the broker. Therefore, it is imperative that you try to make moves on a large and broad pip range; and not a short one. There is, of course, no need to make a huge leap; only make sure that the range is wider than they usually are.

    6. You need to be Patient

    Be patient and wait for the market to make a significant move. In crucial moments, forcing too much upon the system might cause it to become jammed or even crash; which is something that would not be wished by any trader.

    7. Evaluate Your Strategies

    You are required to constantly evaluate and re-evaluate your trading strategies while you’re at hedging. This way, not only would you get to identify the mistakes previously made by you while placing bets, but it would also help you to carefully calculate and predict your next move. Don’t stop evaluating at any point of time.

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