My name is liujiangshi.
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- #1,282
- Jan 28, 2008 10:03am Jan 28, 2008 10:03am
- | Joined May 2007 | Status: Follow at your own risk | 2,106 Posts
Let me take a stab at this...
If you are looking to hedge, then you are probably trying to avoid using stop losses at all, like Breeze. You protect your trade with the hedge instead of a stop loss.
In your example above, you would open the hedge with the same number of lots you opened the original trade. For an initial sell order:
Sell @209.00 x 10 lots
If you want to hedge after 50 pips of loss, then you would open an opposing trade of:
Buy @209.50 x 10 lots.
You've now frozen your loss at -50 pips no matter which way the price goes. If the price continues up, then your hedge trade will show a profit and the original trade will show a bigger loss, but the combination of the two will always be -50 pips.
The art of hedging is knowing when to release either trade in order to make some profit and hopefully increase your usable margin.
Hedging is very tricky and I would suggest trying it out for a long time on demo before trying it live. There are some peculiarities about hedge trades that most people don't consider. It's easy to get into a "hedge trap" as I call it. I know first hand as I was in the trap for months after the August drop and I'm still fighting with this latest drop in G/J.
Usable margin is the key to keeping from a margin call. Your account can have $1,000,000 in it, but if your usable margin gets too low you will be margin called.
Keep in mind that while a trade is hedged, your usable margin will not increase, but will probably decrease as days go on. Daily premiums will drop your usable margin every day. Opening a hedge trade in itself knocks the spread out of your usable margin and you won't get it back. Figure that one lot of G/J at a 9 pip spread is about $81 out of your usable margin every time you open a hedge. If you are constantly opening and closing hedges, you will eventually bleed away your usable margin.
Even if one of your hedge trades is showing a $10,000 profit, closing that trade will make no change to your usable margin. Your cash balance will increase, but your usable margin stays the same.
Also, if your account is in USD, be aware that if USD/JPY goes down, so does your usable margin figure due to the conversion of the losses in your account to USD.
So, if you've got plenty of margin, hedging can be profitable if you know what you are doing, but if you are hedging to protect your account because your margin is getting low, be very careful.
MARGIN IS KING in this business.
Bruce
I started a trade this morning...but I made a mistake and clicked "Sell" instead of "Buy". Ok, so I figure, just put a hedge on this. So, when I am down 50 pips I hedge (but I put a SL on the hedge-thinking that if infact it still wants to move up I'll loose this position, and commit to the Short trade. Then I think, but what if it does start to go down again, so I put a SL on my Long trade. Ok, I figured, I've covered all my bases).The SL triggerd on my Long trade. So overall, I'm down 75 pips.
But my short trade takes off. Now However, I'm sitting at -30 pips on the short position.
So I hedge again. I place an Entry order to Buy at a price just below my SL on the short trade-Are you as confused, at this point as I am?.
So now I am sitting with both trades in the minus column. I have SL on both of them, as well as TP on both of them.
Is ther ANY help/hope for me at all????
You all have been so kind to try and teach me this. I'm just not sure I am smart enough to do this.
ppm
I am now down 30 pip
- #1,289
- Jan 29, 2008 7:03am Jan 29, 2008 7:03am
- | Joined May 2007 | Status: Follow at your own risk | 2,106 Posts
- #1,290
- Jan 29, 2008 7:19am Jan 29, 2008 7:19am
Cutting the rate by 50 bases points is not enough.....everyone is waiting to see if there'll be any more positive economic data such as unemployment and property prices....and by the way statistics to be released later holds the fate of that 50 bases points....and the 25 bases points is not ruled out....polotical uncertainties and subprime crisis has caused evryone to be cautious of the situation in the US.....and this will continue to affect Investments
- #1,291
- Jan 29, 2008 12:39pm Jan 29, 2008 12:39pm
If that will be the case the global equity markets will fall once again alongside with gbp/jpy i see a double top pattern at 213.70-214.00 today from that standpoint profit taking would emerge and downside risk would play once again...
- #1,292
- Feb 2, 2008 6:48am Feb 2, 2008 6:48am
- | Joined May 2007 | Status: Follow at your own risk | 2,106 Posts
- #1,293
- Feb 2, 2008 7:06am Feb 2, 2008 7:06am
- | Joined May 2007 | Status: Follow at your own risk | 2,106 Posts
- #1,294
- Feb 2, 2008 7:08am Feb 2, 2008 7:08am
- | Joined May 2007 | Status: Follow at your own risk | 2,106 Posts
- #1,295
- Feb 2, 2008 7:09am Feb 2, 2008 7:09am
- | Joined May 2007 | Status: Follow at your own risk | 2,106 Posts
- #1,296
- Feb 2, 2008 7:14am Feb 2, 2008 7:14am
- | Joined May 2007 | Status: Follow at your own risk | 2,106 Posts
- #1,298
- Feb 3, 2008 1:58am Feb 3, 2008 1:58am
- | Joined May 2007 | Status: Follow at your own risk | 2,106 Posts
the problem is, i left two positions open from last week
Long 209.80
Long 209.80
I hope it can go up again....