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Getting out of a hedge question

  • #1
  • First Post: Oct 6, 2010 2:45pm Oct 6, 2010 2:45pm
My broker will hedge if I drop below my margin requirement:

eg:
I go long on USD/AUS and get a margin call
then, broker opens an opposite position, short (hedge?) to bring it back in line.

When my margin is more than sufficient again and pair swings my way, if I am holding on to them, do I just sell off the hedge? Just wondering it that is what I can do as the broker I use won't actually clean out an account until it has only $100 left in it.

This is all in my demo and I have been forcing a margin call to see how it all plays out with the messages etc. I have to admit I am still confused about hedging, but I think it means an opposite position is opened up in Forex
  • #2
  • Oct 6, 2010 10:30pm Oct 6, 2010 10:30pm
Huh
  • #3
  • Edited 10:55pm Oct 6, 2010 10:44pm | Edited 10:55pm
Quoting pipmutt
Huh
lol, let me explain it another way as I probably have the technical terms wrong!

Firstly I am using the demo platform to force a margin call to see how it plays out.

When my leverage is used up, the broker opens an opposite position to mine.....which I thought was considered a hedge?

Just wondering, if the pair I am trading swings my way again and margin is fine, if I can close the opposite position the broker opened? I hope it makes sense now. If I read it correctly, they don't allow me to close the hedged positions, so how do I get out of it all? Here is their policy below

Margin call and margin cut policy

Margin call (use of leverage >100%) means a situation where the margin requirements do not allow the client to increase exposure on his account.The client may only close the existing unhedged positions or hedge current positions in order to reduce exposure. Despite the margin call level being reached, the positions will not be closed automatically. The automated system will cancel all placed bid/offer orders that can increase the exposure.
Margin cut or cut-off level (use of leverage ≥ 200%) - if the use of leverage reaches or exceeds 200%, Dukascopy Bank has the right (but not the obligation) to fully or partially reduce the client's exposure by closing existing positions and/or by opening new positions in the opposite direction. Usually the system automatically reduces exposure so that the use of leverage is brought to approximately 100%." source http://www.dukascopy.com/swiss/engli...counts/margin/
  • #4
  • Oct 7, 2010 1:13am Oct 7, 2010 1:13am
Quoting klrman

fully or partially reduce the client's exposure by closing existing positions and/or by opening new positions in the opposite direction.
Wow, first time I've ever heard of that!
  • #5
  • Oct 7, 2010 1:18am Oct 7, 2010 1:18am
Most brokers do not allow true hedging any more.

What your describing to me at lest is getting a margin call because of being over leveraged, if that's the case cut your risk down to 1%


-Mike
  • #6
  • Edited 4:15am Oct 7, 2010 1:47am | Edited 4:15am
Quoting thehouse
Most brokers do not allow true hedging any more.

What your describing to me at lest is getting a margin call because of being over leveraged, if that's the case cut your risk down to 1%


-Mike
Yes, I understand that, but I was just theorizing "what if" to understand their process better. It seems from what I gather, when your account is over leveraged, they don't immediately clean you out, which sounds good to me, but I still don't fully understand it and was hoping somebody could explain it clearer to me.

Just curious that if they open hedging positions in the opposite direction to my positions, due to being over leveraged, if I could just close their hedge position again if the pair rises again rapidly before needing to wire money to cover the margin call...... because it seems they sort of protect your account until you are over by another 100%. which then gives them the right to do whatever they choose.

What I don't also get is that in their margin policy, they say they open hedging positions in the opposite direction when your account is 200% over leveraged, but on my demo, they do it when it is hits 101% which is a little confusing still. Here is a pic of their margin policy summary from the same page

http://i982.photobucket.com/albums/a...an1/margin.gif
  • #7
  • Oct 7, 2010 11:27am Oct 7, 2010 11:27am
Quoting klrman

if they open hedging positions in the opposite direction to my positions, due to being over leveraged, if I could just close their hedge position again if the pair rises again rapidly before needing to wire money to cover the margin call...
If you close the 'hedge' won't you still be in a margin call situation? The gains (or less loss) on the original trade will be equal to the losses on the opposite trade. One position gains as the other one loses, equally.

I don't really understand the reason behind their policy to open an equal size trade in the opposite direction, unless it's to buy you some time to send more funds rather than them margin call and liquidate open trades.
  • #8
  • Oct 7, 2010 12:00pm Oct 7, 2010 12:00pm
Quoting pipmutt
If you close the 'hedge' won't you still be in a margin call situation? The gains (or less loss) on the original trade will be equal to the losses on the opposite trade. One position gains as the other one loses, equally.

I don't really understand the reason behind their policy to open an equal size trade in the opposite direction, unless it's to buy you some time to send more funds rather than them margin call and liquidate open trades.
Yeah, I have been thinking about that too. After looking at their hedge when I hit 101% of levearge usage, they only opened opposite position of about 10% of my position to bring it under 100% so I guess I could close it under those circumstances....I think. If I was asleep for a week or in hospital and my use of leverage hits 200%, then they open opposite position equal to the full amount of my position I think, then I could not get out of it. I have to get the demo to play this all out to see how it works, but the first time I closed their hedge, my demo said "ACCOUNT BLOCKED..call help desk" lol
  • #9
  • Oct 7, 2010 12:14pm Oct 7, 2010 12:14pm
Quoting klrman
"ACCOUNT BLOCKED..call help desk" lol
Why dont you call them and ask? I dont get why everyone is so afraid to call their broker to ask them a question especially when it pertains to said brokers business tactics. Are you scared or something? They do work for you (or would like to) and I am sure they would be more than happy to explain it to you.
  • #10
  • Oct 7, 2010 12:25pm Oct 7, 2010 12:25pm
Quoting traderjai_inhi

Why dont you call them and ask?
Good idea, then at least it's coming from the broka themselves rather than us speculating.
  • #11
  • Edited 3:24pm Oct 7, 2010 1:42pm | Edited 3:24pm
Quoting traderjai_inhi
Why dont you call them and ask? I dont get why everyone is so afraid to call their broker to ask them a question especially when it pertains to said brokers business tactics. Are you scared or something? They do work for you (or would like to) and I am sure they would be more than happy to explain it to you.
Well, when I email them, they tend to ignore my questions! I can't blame them really as I am a beginner and I had to get up to speed real fast so I maybe asked 10 question in several emails of which many were ignored. And they do state clearly on their FAQ that they are geared towards institutional amounts of trading but do accept retail clients, so I did not want to push it as there are many things I really like about them.
  • #12
  • Oct 7, 2010 3:28pm Oct 7, 2010 3:28pm
Quoting klrman
My broker will hedge if I drop below my margin requirement:

eg:
I go long on USD/AUS and get a margin call
then, broker opens an opposite position, short (hedge?) to bring it back in line.
LOL!

The nedgers now started running brokerages? This is the end of retail forex as we know it.

Do yourself a favor and never open an account with them.
  • #13
  • Oct 7, 2010 4:16pm Oct 7, 2010 4:16pm
They probably implement a hedge until you send more cash--then you can add it to your losing position. Rather than trying to sort it all out, it might be easier to just trade with a reasonable amount of risk, thus avoiding margin calls to begin with.
  • #14
  • Last Post: Oct 7, 2010 4:32pm Oct 7, 2010 4:32pm
Quoting billflet
They probably implement a hedge until you send more cash--then you can add it to your losing position. Rather than trying to sort it all out, it might be easier to just trade with a reasonable amount of risk, thus avoiding margin calls to begin with.
I agree. I never want to get a margin call anyway so maybe I am just waisting my time trying to see how it all plays out.
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