What is Forex Hedging

When you trade an asset in different directions almost at the same time, it is described as hedging.
This means that when you go long on GBP/USD and almost at the same time, short on GBP/USD or
other correlated pair of the Great Britain Pounds, youve hedged your trade.
By utilizing Forex hedge effectively, you prevent the the downside risk and upside risk of your long and
short positions respectively.

How to use the Forex Hedging Strategy

Forex Hedging may not be as simple as you think because theres a particular strategy you have to
follow in order to make the best out of the system.
The main objective of using this strategy is to minimize loss and profit is only secondary but with
proper technical analysis and experience, the main aim of using this strategy may be to make profits.

Maximize Profits with the Strategy

It is easy to make profits using this system as long as you have a sound technical analysis.
By using a Forex broker that accepts hedging, open two trades that are direct hedges.
Leave the trades to run for some time ( depending on your analysis).
When you think one of the trades have reached its highest high or lowest low and likely to reverse,
close the second trade in profit and wait for the losing trade to turn to your favor by a certain number
of pips (depending on your analysis).
Then, close your trade either in loss, break even or even profit.
Overall, youve made a profit regardless of whether you lost the second trade or closed it at break
even.
Lets give an instance:
Say you opened two positions Buy and Sell EUR/USD (same lot sizes) both at 1.4000. You allowed
the trades to run for 1 day (depends on your analysis).
After 1 day, the current price of EUR/USD is 1.3000. This means that the long position is losing by 100
pips and the short position is gaining by 100 pips. Floating net profit remains zero.

At this point, if EUR/USD is strongly oversold and likely to reverse or by any other analysis, you detect
that EUR/USD is likely to rise you just need to close the short position in profit of 100 pips and leave
the long position to run.
After a reverse in direction of the pair, say the bullish position has now returned to 1.3930 (-70 pips)
loss. You can now close the trade in loss of -70 pips, wait for break even or even for a few pips profit
on the long trade.

When closed at a loss of -70 pips, you make a net profit of +30 pips compared

with your previously closed short trade.

When closed at break even, you make a net profit of +100 pips
When closed at a few pips in your favor, you make a net profit of +100 pips +
value of the few positive pips.

Minimize losses with the Strategy

The original purpose of using the Forex hedge strategy is to protect you from unexpected losses.
This is how it goes:
Say you went long on the GBP/USD at 1.6000 at a particular lot size After 24 hrs, the current price
of the pair is at 1.5000.
Based on your analysis, you realized that youve made a wrong trading decision and the trend
direction is likely to remain bearish.
Your next action was to hedge that open position with a new sell position of same lot size at 1.5000 .
This will make your floating loss to remain at -100 pips with every movement in the GBP/USD pair in
both directions.
Even when the pair has gone as low as 1.3000, your loss was not increasing and when the price
starts heading to 1.6000, you can close your short position at a profit before it goes back to 1.5000.
You now wait for the appropriate time to close your bullish position.