Joined: 03 Mar 2016
|Posted: Thu Mar 03, 2016 11:20 am Post subject: Hedging in the FX Market: Things to Remember
|Hedging in forex, when defined simply, refers to the act of making moves to ensure that a present or an anticipated position in the forex market is not threatened by untoward movements in the exchange rates of a particular pair of currency. Some of the most prominent weapons in this regard are spot contracting and foreign currency options. Now, before you enter into hedging, you need to remember a few things:
1. No Place for Rookies
A word of caution: Hedging is not for newbies. So if you are a beginner, then you will need to refrain from the temptation of trying it out. You need to get used to the nitty-gritty and potholes of forex-land, along with learning how to get around those potholes. In other words, you need to get used to the current system and gain expertise and experience.
2. Consult with Your Broker
There are a lot of brokers out there that do not allow for hedging, and they normally have pretty good reasons for it. In order to gain permission to go ahead with your hedging plans, you should first make sure that your broker is fine with the fact that you plan to start hedging.
3. Set up Automatic Execution
You would need to make automatic executions when you start hedging. Thus, before starting hedging, you need to make sure that you know the tools of automatic execution, by heart.
4. Mind the Timing
Hedging seems to work well when the market is moving sideways; i.e., the movements are practically limited to the present and limited range. Therefore, you need to keep a tab on the timing and make wise use of the method, failing which you’d be in a fix.
5. Place Bets on a Large Pip Range
You need to bear in mind that you would have to pay commission to the broker after you have gained a profit in trade. Therefore, you should try to make moves on a large pip range and not a short one. You need not make a huge leap, but try to make it bigger than you usually would.
6. You Need to be Patient
You should be patient and wait for the market to make a performance. In a delicate moment, forcing too much upon the system might cause it to crash or become jammed up, which is something that would bode well for no one.
7. Evaluate Your Strategies
You need to evaluate and re-evaluate your trade strategies. Not only would it help you identify the mistakes in placing bets that you’d made previously, but it would also help you to carefully calculate and predict your next step. Don’t stop with evaluating at any point of time; keep doing them again and again.
Shared by Fibo group: http://fibogroup.com/.