What is a "Hedge" order?

Quoting Bemac

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Without taking the Spread into acount... It allows you to be BOTH Long & Short any particular pair effectively putting your position at zero. {20 pip move = 20 pip gain on one trade while it also = 20 pip loss on the other.}

It is most commonly used when you believe there is a large move immenent but you are not sure in which direction. So.. go both ways via a Hedge Order and close the wrong one ASAP and allow the correct one to run to to your TP or whatever.

As in all trading techniques, it is not infalleable.

hth

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Quoting Yoda_Glenn

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But why not simply buy or sell the currency pair when it begins to move in the direction of your liking?

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Quoting Yoda_Glenn

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But why not simply buy or sell the currency pair when it begins to move in the direction of your liking?

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Quoting Yoda_Glenn

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What exactly is this "Hedge" button on my FOXSol demo account? What does it do? And what is its ultimate purpose? Thanks.

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Quoting mrmikal

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Yoda,

This is an excellent question.

As explained, there are actually 2 types of hedging that serve different purposes:
- a hedged order is actually a long AND short in the same currency.
- a correlated hedge can actually be 2 different correlated currencies that are either both bought or both sold (if they are negatively correlated) OR 1 sold and 1 bought (if the are positively correlated)

The MAIN purpose of hedging is to mitigate risk.

In a hedged order, the purpose of taking the SECOND order is to actually PROTECT profit during unexpected volatility. So, let's say you've made 100 pips going long on the USD/CHF PRIOR to NFP, and you'd like to STAY in the market during the release, but don't want to exit the market during the release...so, before NFP, you take out an equivalent SELL position in the USD/CHF. Thus, after NFP, if the movement is in your favor, you can drop the SELL position and continue with the trade OR drop the BUY position and reverse OR drop both positions and keep your LOCKED in profits.

Another reason you'd take out a hedged position (and probably the more popular reason in the bigger circle) is to avoid a margin call on week overnight or overweekend positions. If you are running close to margin call, some companies either require you to liquidate the position OR take out a hedged position in order to avoid a margin call (especially when brokers have different requiremetns for overweekend positions).

The purpose of a correlated hedge is to mitagate risk by interacting with a pair of rates that are strongly correlated (either positively or negatively correlated). This gives you the unique opportunity of collecting interest, or even profit. For example, the USD/CHF and GBP/USD are strongly-negatively correlated rates. Theoretically as the USD/CHF moves up, the GBP/USD moves down by a very very close percentage (and vice versa). If you were to buy both of these currencies and distribute the weight accordingly, you could potentially collect enough interest on the USD/CHF to offset the charged interest on the GBP/USD so you can profit from a long-term carry trade. Furthermore, there are times when the swap rate between the crossover rates (the GBP/CHF) moves favorably to your position such that both the USD/CHF and the GBP/USD rise (and fall) at the same time (diverge in correlation) and you can collect profit. The theory is, you can hold out for much longer as the rates move opposite each other, and then when they do move in the same direction, you can collect the profit...all of this while collecting interest on the swap. It isn't risk-free money, but it's less risky than buying a single currency. SisterCurare was experimenting with this a while back.

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Quoting loyalFX

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{quote} This is a button with a help of which you will make lots of money in future

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