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thehun69 Jul 25, 2007 2:30pm | Post# 1

Hedging Question - Quick Question Looking for A Quick Answer

I had a question with hedging. Essentially, you buy and sell a currency at the same time, so Buy 10 lots EUR/USD Sell 10 lots EUR/USD, as an example, or EUR/GBP, as a better example as that has a histroy of range trading. The thought is to pick a point in the range, say a support level, ride it to the top, close one of the legs, then wait for it to hit some resistance, come back down and close the other leg.

My question is this if the whole point is to buy at the bottom and selling a the top, what is the purpose of hedging? Why don't you just buy at the support and sell at the resistance outright? Why take on two positions at once? What is the edge there?

Thanks for your help.


bhale Jul 25, 2007 2:37pm | Post# 2

My answer would be that hedging of the same pair is to stop a loss from getting worse, but it is very very hard to unwind with a profit.

True hedging is using 2 or more pairs to offset each other, especially if the two are highly negative correlations suchh as EURUSD and USDCHF. Buying both of these is the same as buying EURCHF, but at times they move away from the correlation and a profit can be made. I use a dollar hedge. Buy EURUSD, GBPUSD, USDJPY, and USDCHF. Collects interest daily and profits when one or more shoot up faster than the others.

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