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What's the point of hedging?

  • #81
  • Feb 10, 2010 7:47am Feb 10, 2010 7:47am
Have to agree, totally pointless.
  • #82
  • Feb 13, 2010 4:47pm Feb 13, 2010 4:47pm
Hedging the same pair works if you are holding a long term trade and you want to play a correction in a smaller timeframe. can be a great tool if used correctly.
  • #83
  • Mar 2, 2010 11:09pm Mar 2, 2010 11:09pm
Quoting scalpah
Hedging the same pair works if you are holding a long term trade and you want to play a correction in a smaller timeframe. can be a great tool if used correctly.
That's not hedging. That is two separate but opposite trades. One is a long term position and one is a short term position in the opposite direction. question is, If you think it is going to go in the opposite direction, why don't you close the long term position and then reopen it when you would have closed the short trade?
  • #84
  • Mar 3, 2010 12:00am Mar 3, 2010 12:00am
New to the factory but I have to agree hedging makes no sense..
  • #85
  • Apr 13, 2010 2:36am Apr 13, 2010 2:36am
what about hedging a short trade on a futures contract with a call option on the same instrument?
I know of some professionals who do this and assume it must have a point to it. Why is that different from what is being discussed?
  • #86
  • Apr 13, 2010 11:56am Apr 13, 2010 11:56am
I see hedging as pointless. Close it out and forget about it....
  • #87
  • May 17, 2010 1:29am May 17, 2010 1:29am
Is there an EA to Hedge a single pair/ instrument
FX Hedging Strategy

For Metatrader Platform: Broker which allows “Hedging” in same currency pair
For example www.fxcm.com.au in Australia

Variables: TP = Take Profit, SL = Stop Loss, TL = Trailing Stop
Entry requirements: None ( may be revised down the track on measure of volatility
Special conditions * see middle case scenario


Idea: Open both long and short position in a pair
Set: ( as example) on both positions
TP = 100
SL = 50
TL = 20

Best cast scenario: (ignore spread)
Long moves up by 100 pips
Short side is closed at -50 loss
Long side takes profit @100 = =100
Overall = +50

Worst cast scenario: (ignore spread)
Long moves up by 50 pips and then moves down by 20
Long side : TS triggered on Long side Long side closes at +30
Short Side loss = -50
Overall = - 20

Middle case scenario: (ignore spread)
Long moves up by 20 pips and then moves down by 20 pips
Long side : TS triggered on Long side Long side closes at 0
* AT the same time EA Must close Short side at 0
Overall = 0
  • #88
  • May 17, 2010 5:51am May 17, 2010 5:51am
why not just use protective options?
  • #89
  • May 17, 2010 5:56am May 17, 2010 5:56am
Which Options on FX are only available on CME and OTC options via saxo bank
Do you suggest any other
  • #90
  • May 17, 2010 6:37am May 17, 2010 6:37am
Hedging is very dangerous !
  • #91
  • May 17, 2010 8:25am May 17, 2010 8:25am
Quoting User112
Hedging is very dangerous !
Are you sure you're not thinking of hedge trimming?
http://images.mirror.co.uk/upl/m4/no...-427505709.jpg
  • #92
  • May 18, 2010 6:17pm May 18, 2010 6:17pm
Quoting moksha
Is there an EA to Hedge a single pair/ instrument.......
Are you saying that the second trade is closed automatically ANY TIME the first trade exits via its trailing stop?

If that's NOT so, then what if the following happens......... price rises 30 pips, then falls 20 pips, then rises 40 pips
In this case, long trade is closed at +10 (trailing stop hit); short trade gets stopped at -50 (original stop hit)
Net result is -40, which is worse than your designated 'worst case'

Apart from your special case (i.e. when one trade's trailing stop gets hit, the other trade immediately closes) then - assuming your br0ker allows nedging - you don't need an EA. Simply enter the trades manually with their respective TP, SL and TL
  • #93
  • May 19, 2010 5:05am May 19, 2010 5:05am
If you want to transfer funds form one account to another;
Go long eu with one account, go short eu with your other account, (net exposure =0).
Wait until the desired amount of money is transferred in the right direction.
Close the hedge.
  • #94
  • May 19, 2010 5:50am May 19, 2010 5:50am
hedging has many pros and cons depending on its use. a very very nice use is instead of stop loss. you open a hedge position instead of closing a position. then you wait for the market to calm down, you get the profit from the one positions (if there is any) and wait for a good moment to close the other position with smaller losses or even profit. this off course works on normal market conditions and needs some experience as well. and patience. but it is a nice tactic for forex trading.

however, I am not sure for how long the market is going to be stable. collapse is coming next months or year. and it will be a collapse collapse. so make money while there is time to do so.
  • #95
  • May 19, 2010 1:18pm May 19, 2010 1:18pm
Quoting papaki
hedging has many pros and cons depending on its use. a very very nice use is instead of stop loss. you open a hedge position instead of closing a position. then you wait for the market to calm down, you get the profit from the one positions (if there is any) and wait for a good moment to close the other position with smaller losses or even profit. this off course works on normal market conditions and needs some experience as well. and patience. but it is a nice tactic for forex trading.
You can achieve exactly the same result without 'hedging':

-- Hedged both long and short = net zero = same as being out of the market

-- Closing one of the hedged positions = leaves you net long or short = same as opening a position long or short

Every stance in the market is either net long X lots, net short X lots, or net zero. You can achieve it either with or without 'hedging'. It's not the hedge itself that determines the P/L, it's your net position relative to whether price is rising or falling.

This has been explained in more detail in other threads.
  • #96
  • May 19, 2010 1:28pm May 19, 2010 1:28pm
a hedged position of net zero is worse than no position because:

even if a position is hedged at net zero it is not "safe". If the spread widens 100 pips you could potentially get a MC. As the P/L of the long will depend on the BID price and the P/L of the short will depend on the ASK price, these are two separate prices with obvious correlations, but don't always move in the same direction, e.g. under extreme market conditions.

where as if you have no position you not exposed to this risk
  • #97
  • May 19, 2010 1:42pm May 19, 2010 1:42pm
Quoting rooicol
a hedged position of net zero is worse than no position because:

even if a position is hedged at net zero it is not "safe". If the spread widens 100 pips you could potentially get a MC. As the P/L of the long will depend on the BID price and the P/L of the short will depend on the ASK price, these are two separate prices with obvious correlations, but don't always move in the same direction, e.g. under extreme market conditions.

where as if you have no position you not exposed to this risk
It's also better to be out of the market, than 'hedged', at 5pm New York time, if your br0ker charges more swap on the 'negatively aligned' position than he pays on the 'positively aligned' one.

There are additional situations where one pays more spread by using 'hedging', as explained here.
  • #98
  • May 19, 2010 3:00pm May 19, 2010 3:00pm
I talked with some people about hedging, and what I've seen is that in general they can't accept the idea that they were wrong. They must win, no matter what. Thus they "hedge". Of course, with such a mentality you won't get too far.

Prospect_theory is highly relevant here.
  • #99
  • May 19, 2010 11:08pm May 19, 2010 11:08pm
I love hedging as I can stay in longer time frame trades and also trade the counter trends as well
  • #100
  • May 20, 2010 6:30am May 20, 2010 6:30am
Quoting hanover
You can achieve exactly the same result without 'hedging':

-- Hedged both long and short = net zero = same as being out of the market

-- Closing one of the hedged positions = leaves you net long or short = same as opening a position long or short

Every stance in the market is either net long X lots, net short X lots, or net zero. You can achieve it either with or without 'hedging'. It's not the hedge itself that determines the P/L, it's your net position relative to whether price is rising or falling.
off course you can do the same thing without hedging, but the question is if you would open a position in that case. if you bid on the trend and something goes wrong, by hedging you get the opportunity to even make some profit when the market goes in the opposite direction. then you wait for it to stabilize and return to its normal trend. and not only you don't lose money, but make some. all the above, off course, under normal market conditions. for the time being there are such conditions.
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