Basically, Hedging is used to protect one s position and the trading capital in a currency pair from an unfavorable rapid move. Peoples also called it short-term protection.
If you know about forex trading, you must know that how risky it is. Every day a lot of traders are losing their capital while trading for their unguardedness or unmindful Ness. Sometimes they forgot to close the trade. As a result, the equity is going to empty or down. Professional traders thought about it and decided to bring a strategy that will protect the capital. Hedging is one of the best forex trading strategies for protecting the capital from inconveniences situation.
We know that the forex market has too much volatility, especially for currencies, sometimes the market moves rapidly for any concerning news or event triggers Hedging is used to protect the capital from the concerned news or any event triggering that s why a lot of peoples are calling it as short-term protection.
Different Strategies of Hedging in Forex
Although there are no fixed hedging strategies in forex trading, people are using some pre-used strategies while trading. Some strategies are using by the pro traders. These are Direct Forex Hedging Strategy, Forex correlation Hedging Strategy, and Forex Options Hedging Strategy.
Direct Forex Hedging Strategy
Direct Forex Hedging Strategy is open for both buy and sell positions in the same currency pair, but there were two pitfalls. That s why currently it is not using too much in trading. There are a lot of new rules set by brokers in this strategy.
Forex correlation Hedging Strategy
This is the most popular Hedging strategy in forex that involves the use of higher positively or negatively correlated FX pairs. This strategy can be helpful in the sense while the market utilizes positively or negatively correlated pairs as well.
Forex Options Hedging Strategy
Forex Options Hedging Strategy is for some specific traders who don t like to open several positions for Hedging in Forex. There is a very good way to use the options. It gives them the right but not an obligation to buy or sell pairs at a predetermined rate.
Note that you don t need to choose any of the strategies because many experts are available in this market and are creating new strategies as their Convenient. You can create your own strategy if you could be a good market analyzer.