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  • #421
  • Edited 9:20pm Apr 12, 2012 8:51pm | Edited 9:20pm
Quoting nanningbob
A risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies.
Hedging employs various techniques but, basically,involves taking equal and opposite positions in two different markets (such as cash and futures markets).
Please note I've changed the emphasis. Buying and selling the same currency pair in the same market at the same time is not hedging. It is called being out of the market. Only your NET position matters. Let's go with cars on this one: say you buy a car and then sell that car - at that point are you long car or short car? Neither. No matter how you do your accounting, you are OUT of the car market.

Also, please understand how arbitrage works and you will see why EUR/JPY is very much dependent on USD/JPY and EUR/USD (and vice versa).

I'm sorry Bob, but you are absolutely 100% wrong on both points.
  • #422
  • Apr 12, 2012 9:19pm Apr 12, 2012 9:19pm
Quoting nanningbob
Dont like Wikipedia's definition, it is the world's #1 encyclopedia. Encyclopedia Britanica stopped making encyclopedias to sell because of them. How about investipedia's definition then since you dont have one;

Hedging is the practice of purchasing and holding securities specifically to reduce portfolio risk. These securities are intended to move in a different direction than the remainder of the portfolio - for example, appreciating when other investments decline.
Definition of 'Forex Hedge'
A transaction implemented by a forex...
First of all, wikipedia is written by internet users. It is known for having many inaccuracies as a result. More than a reputable encyclopdia should at least. That doesn't mean it can't be useful, but it's not like it's the word of God.

Now, hedging different instruments can be a viable strategy, but hedging same instruments is flat out dumb. It's dumb because of the additional cost of swap that is NOT neccessary when you can accomplish the same without hedging. Let me repost this for you in case you missed it...

That's not the point.


Anyway, hedging = dumb. Let me explain why...


Scenario #1:

10 lots short hedged with 5 lots long = 5 lots short

Scenario #2:

5 lots short without hedge = 5 lots short

Therefore, net position of scenario #1 = net position of scenario #2


Follow me so far? Good. Moving along...


Scenario #1 pays out interest on 10 lots and gains interest (at a lower rate than interest is paid out) on 5 lots.

Scenario #2 pays out interest on 5 lots only.

Therefore, with hedging you pay more interest than you would without hedging on the same net position. Even if you invert the interest gained to the greater position size you will recieve less interest with hedging as compared to without hedging. Because interest rate payout to br0ker is higher than interest payout to trader. This is very basic math.

Conclusion: Hedging = dumb.
  • #423
  • Apr 12, 2012 9:22pm Apr 12, 2012 9:22pm
Quoting fierceman
Please note I've changed the emphasis. Buying and selling the same currency pair in the same market at the same time is not hedging. It is called being out of the market. Only your NET position matters. Let's go with cars on this one: say you buy a car and then sell that car - at that point are you long car or short car? Neither. No matter how you do your accounting, you are OUT of the car market.

Also, please understand how arbitrage works and you will see why EUR/JPY is very much dependent on USD/JPY and EUR/USD (and vice versa).

I'm sorry Bob, but you are absolutely 100% wrong on both points.
At this point Bob is just playing games. It's what he does when he's wrong. His ego doesn't allow him to admit there is a better way than his, let alone that he is wrong sometimes, so he starts acting like a fool. His way of dealing with the situation when he has been proven wrong is to try and provoke frustration to the other side. In other words he tries to play it off like he's just having fun. It's his little inside joke. What he doesn't realize is that everyone is already laughing (at him).

Whatever you do, don't go in his 10.0 thread and prove him wrong. In there he's serious. In fact he has banned people for embarassing him in front of his little cult following.
  • #424
  • Apr 12, 2012 9:36pm Apr 12, 2012 9:36pm
Bob,

With all due respect. You are not getting the concept of hedging correctly. At least based on the examples you are providing in this thread.

Hedging over multiple instruments are generally the norm because of the fact that there could be premiums paid out to the trader while being in a hedged position.

Hedging in stocks (as the only instrument) can also be viable (although I have not encountered any examples simply because using options as a hedging strategy is much more efficient and profitable) because stocks pay interest for holding them. So logically, you could be holding 2 hedged stocks forever and still end up profitable.

Another example would be a oil palm farmer who generates tons of oil palm every year. He might decide to use the futures market and hedge himself so that his prices will always be fixed at a favourable rate. These are the uses of hedging. These are how it was intended to be used.

Hedging in spot forex (as the only instrument) is not really hedging.
1)Firstly, you lose money on premiums (through swaps, spreads)
2)You are basically cancelling out your positions if you "hedge" same pairs.
3)A synthetic pair, as jack larkin said, is not a hedge. You are right that at some point there will be inefficiencies such that there might be a bit of discrepancies between prices, but these are quickly closed up. If they are not, everybody would be rich.

The concept for this is similar to how futures prices ultimately converges to its spot price as maturity approaches. There cannot be a difference or it will present an arbitrage opportunity for people and everybody will be millionaires.

And wikipedia is not written by Paul Tudor Jones or Warran Buffet or George Soros. If they were, it would probably be a very different article.
  • #425
  • Apr 12, 2012 10:06pm Apr 12, 2012 10:06pm
Quoting thelws
Bob,

With all due respect. You are not getting the concept of hedging correctly. At least based on the examples you are providing in this thread.

Hedging over multiple instruments are generally the norm because of the fact that there could be premiums paid out to the trader while being in a hedged position.

Hedging in stocks (as the only instrument) can also be viable (although I have not encountered any examples simply because using options as a hedging strategy is much more efficient and profitable) because stocks pay interest...
Thank you for getting the discussion on track. This is the point. I dont care about whether you hedge or not. I didnt use it except for the couple of times I mentioned. It is not part of my trading arsenal. How hedging is termed and used outside of Forex is different how it is termed and used inside Forex. The Swiss National Bank said recently that it does business with over 700 forex brokers. If you call them and ask them do you allow hedging they all follow the same definition that is used in Forex. Buying and selling the same currency pair at the same time. Now whether you like that definition or not, that is how the term is used in Forex. Yes that is not how it is used elsewhere in other investment fields and I hope you dont think I am writing a big defense here in using it. I am not, how can I defend something I dont use. But in Forex that is its definition used industry wide whether you use it or not. So you can write all the posts you wont how, that really isnt hedging, but in Forex that is how it is defined and that is how it is used, whether you agree with the practice or not. In the USA they banned hedging (not nedging) so the definition as used in Forex stands. It is buying and selling the same currency pair. You cant change that with any argument. You can argue its value or not but not its definition because that is how it is used in the Forex field. Enough OK.
  • #426
  • Apr 12, 2012 10:39pm Apr 12, 2012 10:39pm
Quoting Lonestar
It is funny that a simple concept is not understood and that lack of understanding is on your part. E/U * U/J = E/J. Do yourself a favor and every fifteen minutes whip out your calculator and do the math. As others have pointed out forex is one of the most efficient markets. And that has to be the case or it opens up major arb opportunities as well as it's simple math and the way quotes work since they share a currency. In your example E/J cannot move without one if not both other pairs in the equation compensating for it. That's the way it works....
You are trying to make a business transaction a math problem. It isnt, its a business transaction. I proved this with the AUD/NZD. Put the tick charts up for the AUD/NZD, NZD/USD and AUD/USD. When a transaction happens the tick chart will move. If the aud/nzd transaction corresponded like you said then you would see corresponding action on the tick charts of the aud/usd and the nzd/usd. But you wont, in fact the tick chart you see most likely wont even be the same bank that transacted the business. The math formula you use is irrelevant. The transactions are independent of each other. The price action on the aud/nzd, aud/usd, and the nzd/usd are all different.
  • #427
  • Apr 12, 2012 10:57pm Apr 12, 2012 10:57pm
Quoting nanningbob
The Swiss National Bank said recently that it does business with over 700 forex brokers. If you call them and ask them do you allow hedging they all follow the same definition that is used in Forex. Buying and selling the same currency pair at the same time. Now whether you like that definition or not, that is how the term is used in Forex.
Since neither one of us is going to really call the SNB to ask that question, let's continue speculating . I bet you 1000 pips that if you asked anyone at the SNB if hedging was defined that way, they would laugh and hang up.

Quoting nanningbob
In the USA they banned hedging (not nedging) so the definition as used in Forex stands. It is buying and selling the same currency pair.
Show me one place where they said they are banning hedging. What they are doing, is implementing a FIFO rule, which is logical, and therefore doesn't allow for accounting absurdities such as nedging. Oanda and several other reputable brokers (if there is such a thing) never allowed it in the first place - not because they are evil, but because they implement logical accounting standards.

Quoting nanningbob
The transactions are independent of each other. The price action on the aud/nzd, aud/usd, and the nzd/usd are all different.
I don't think anyone claimed that they move in lockstep (I certainly didn't). What I said was that there is no significant difference for any significant period of time. What that means is that whenever a significant difference does present itself, it is arbitraged away by super fast computer algorithms that participate in the market, and by their very participation, alter prices in such a way as to close the very gaps that they are exploiting. It seems you didn't look up the word arbitrage. I still recommend it. Furthermore, synthetic pairs are generally not calculated using 1:1 lot ratios, and pricing precision is therefore affected further.
  • #428
  • Apr 12, 2012 11:04pm Apr 12, 2012 11:04pm
Quoting nanningbob
Dont like Wikipedia's definition, it is the world's #1 encyclopedia. Encyclopedia Britanica stopped making encyclopedias to sell because of them. How about investipedia's definition then since you dont have one;

Hedging is the practice of purchasing and holding securities specifically to reduce portfolio risk. These securities are intended to move in a different direction than the remainder of the portfolio - for example, appreciating when other investments decline.
Definition of 'Forex Hedge'
A transaction implemented by a forex...

Sorry Bob I have nothing to teach you. Running??? Here I am...LOL
Last time I checked this is an open forum. This isnt China Bob. I will say what I want when I want. If you have a problem with that, then you have a problem, it's not mine.

And whats wrong with the various posters pointing out you are wrong?

The general consensus is your wrong. No big deal.. It's OK to be wrong Bob..Sort of like stop losses and trades. You dont need to be right 90% of the time like you profess. really there is nothing wrong with a system that has a 60% win rate.

Good Luck
Bluesteele
Master your Mind,,,Master the Market
  • #429
  • Apr 12, 2012 11:05pm Apr 12, 2012 11:05pm
Quoting fierceman
Since neither one of us is going to really call the SNB to ask that question, let's continue speculating . I bet you 1000 pips that if you asked anyone at the SNB if hedging was defined that way, they would laugh and hang up.


Show me one place where they said they are banning hedging. What they are doing, is implementing a FIFO rule, which is logical, and therefore doesn't allow for accounting absurdities such as nedging. Oanda and several other reputable brokers (if there is such a thing) never allowed it in the first place - not because they...
Then you wont mind if I continue to treat each pairs price action separately then will you??

If you call a bank and say you want to trade Forex and they say yes, and then if you ask do you allow hedging they will say yes or no without any explanations. Whether you believe it is a valid trading method or not is not the point. It is how the word is used in Forex trading. I mean go to websites that list brokers, they will list them somewhere as allow or not allow hedging. They will list nano or not nano lots, they will list bonuses or no bonuses. I am amazed that such a simple term can be so distorted. In Forex I understand how the term is used. The only point I am making is that is how the term is used in Forex. That is all.
  • #430
  • Apr 12, 2012 11:13pm Apr 12, 2012 11:13pm
Quoting nanningbob
Then you wont mind if I continue to treat each pairs price action separately then will you??

If you call a bank and say you want to trade Forex and they say yes, and then if you ask do you allow hedging they will say yes or no without any explanations. Whether you believe it is a valid trading method or not is not the point. It is how the word is used in Forex trading. I mean go to websites that list brokers, they will list them somewhere as allow or not allow hedging. They will list nano or not nano lots, they will list bonuses or no bonuses....
The hedging term is NOT used in forex generally. It is used in RETAIL forex by brokers who bank on the fact that most inexperienced traders can be easily duped by an accounting trick. Unfortunately, it has now become so pervasive that it obscures the real meaning of the word. That is why Merlin tried to (half-jokingly) create the term nedging.

I don't mind at all if you treat each pair's price action in any way you like. My purpose was not to tell you what I personally mind or don't mind when it comes to your trading - your trading has no tangible effect on me. I just wanted to show you the logical fallacies in your thinking.
  • #431
  • Apr 12, 2012 11:41pm Apr 12, 2012 11:41pm
Quoting thelws
Bob,

With all due respect. You are not getting the concept of hedging correctly. At least based on the examples you are providing in this thread.

Hedging over multiple instruments are generally the norm because of the fact that there could be premiums paid out to the trader while being in a hedged position.

Hedging in stocks (as the only instrument) can also be viable (although I have not encountered any examples simply because using options as a hedging strategy is much more efficient and profitable) because stocks pay interest...
I understand that somewhat, hedging is a specific trading skill which I definitely dont have. I just point out that the term is used differently in Forex than elsewhere. I actually dont have a problem with that, some people do but it is how the term is used.
  • #432
  • Apr 13, 2012 2:18am Apr 13, 2012 2:18am
Quoting nanningbob
Thank you for getting the discussion on track. This is the point. I dont care about whether you hedge or not. I didnt use it except for the couple of times I mentioned. It is not part of my trading arsenal. How hedging is termed and used outside of Forex is different how it is termed and used inside Forex. The Swiss National Bank said recently that it does business with over 700 forex brokers. If you call them and ask them do you allow hedging they all follow the same definition that is used in Forex. Buying and selling the same currency pair at...
Why are you so adamant about the definition of hedging if you don't even use it? Why bother?
  • #433
  • Apr 13, 2012 2:28am Apr 13, 2012 2:28am
hedging is often used in forex,generally in futers,large companies generally employ these tactics to protect large risk with ther overseas transactions,

the way hedging is being used here is nothing more than delaying the fact you have a large drawdown and want to scratch your head before it wipes a large part of your account out.mister me mentions hedging on options ect ,that is slightly diferent as you would have a futers option with a fixed risk but a large gain if in your directional favour.i can see how that could be of use for those protecting futer drawdown .

as mentioned by thewls this is generally done in stocks.certainaly the ftse has a certain amount of correlated behavour with cable,somthing i have used for along time.but i think most people dont realise how all these currencies work.
i follow 14 pairs and use the value changes to trade from.watch these changes and you will understand how this all works.
if for example theres a 100 pip drop in euro for whatever reason,every other currencies value adjusts accordingly.
  • #434
  • Apr 13, 2012 3:39am Apr 13, 2012 3:39am
Please,please and please,can you guyz just leave this hedging arguments and focus on something constructive,beneficial and contributive to this guyz(Nacho) thread before you over-hedge,underhedge or nedge his thread? besides nacho'z thread has little or nothing to do with hedging,it lays emphasis on trading with no SL,no leverage and he said itz working 4 him so far.So i think it would be better if we help him sharpen his trading skills and strategy rather than filling up his thread with fruitless arguments coz as i see it,none of you will succumb to the opponent's opinion,so instead of that,i will suggest that one of you should open a thread with the topic-hedging,is it an effective strategy? and post whatever you like there,you know. Nacho,i still insist that you read this thread ---> http://www.forexfactory.com/showthre...45149-Building an Equity Milipede,started by a renowned professional position trader,after reading up to 50 pages,you gonna learn a lot like entering the market with low risk which i think you already know that-am talking about position sizing,creating stacks of positions as the trend builds up and diversifying to replenish your trading balance and ensuring a smooth equity curve and lotz more! Just check it out today,itz one of the coolest thread i have followed on FF Sincerely, Lyondegreat
  • #435
  • Apr 13, 2012 6:56am Apr 13, 2012 6:56am
thanks lyondegreat,

i am trying to read as much as I can and I will also read that thread which seems interesting. I work full day and I cannot always have access to the forum so thats why I dont post much .

Anyway trading my way has been good so far,

my current situation>
closed 51 trades with tp
closed manually 4 trades with a small loss
floating profit 3 trades
floating loss 2 trades

profit since i started (1 month now): 6%
floating loss: 1%




Quoting lyondegreat
Please,please and please,can you guyz just leave this hedging arguments and focus on something constructive,beneficial and contributive to this guyz(Nacho) thread before you over-hedge,underhedge or nedge his thread? besides nacho'z thread has little or nothing to do with hedging,it lays emphasis on trading with no SL,no leverage and he said itz working 4 him so far.So i think it would be better if we help him sharpen his trading skills and strategy rather than filling up his thread with fruitless arguments coz as i see it,none of you will succumb...
  • #436
  • Apr 13, 2012 6:58am Apr 13, 2012 6:58am
Quoting nanningbob
You are trying to make a business transaction a math problem. It isnt, its a business transaction. I proved this with the AUD/NZD. Put the tick charts up for the AUD/NZD, NZD/USD and AUD/USD. When a transaction happens the tick chart will move. If the aud/nzd transaction corresponded like you said then you would see corresponding action on the tick charts of the aud/usd and the nzd/usd. But you wont, in fact the tick chart you see most likely wont even be the same bank that transacted the business. The math formula you use is irrelevant. The transactions...

The outcome of business transactions is governed by math. If you go to the store and buy $8 worth of stuff and hand the cashier $10 you're gonna get $2 back. The two are not mutually exclusive. You seem to think that it's a coincidence or twist of fate that currency pairs are related in this manner and obviously didn't take the time to whip out your calculator and do some simple math. What you saw on your tick charts is irrelevant. As someone else pointed out it's not exact because it's a very fast moving market but will almost always be within transaction costs to avoid arb opportunities. There are also slight discrepancies due to banks using different feeds and different bid/ask. As well as the prices you see from your market maker are smoothed and rounded which is why you don't see an exact corresponding move on your tick chart. Don't fool yourself and think that the quotes you see only go as deep as what you see on your quote panel. Many shops are now showing down to the tenth of a pip but it goes deeper than that. Have you ever wondered why when you see a big move in the yen pairs that it happens on all yen pairs? Do you think it's a coincidence that someone somewhere sold dollars, pounds, frances, euros, etc, for yen all at the exact same time?! Thus creating moves at the exact same time. And that they were sold in amounts that exactly created rates that when you multiply, or divide, it's components that it always equals another rate? This relationship exists and frankly is a fact whether you believe it or not. As someone else suggested look up triangular arbitrage.
  • #437
  • Apr 13, 2012 7:03am Apr 13, 2012 7:03am
Quoting nanningbob
Actually I was interested in how he was going to use the 5MA on a 4H chart. I love trading the 4H with an eye on the daily so this does interest me. So maybe we should posts some charts and get that going. Nacho what were you really wanting to show?

hi nanningbob,

I always enter a trade when I spot an H4 candle closing above/below 5EMA, but since this does not happen very frequently, and I need to open a lot of positions to make some profit, I now also enter using TMS indicator which I find pretty reliable, looking at H1 chart with trend confirmed by H4.
I will try to post some charts asap
  • #438
  • Apr 13, 2012 7:44am Apr 13, 2012 7:44am
Here's something for you Bob:

EU * UJ / AJ * ANZD / GBPNZD = EGBP

Do the math. How about I do it for you.

1.31463 * 80.981 / 84.264 * 1.25388 / 1.92092 = .82469

These were the current bids when I did this and it ends up exactly with the EUR/GBP rate. Why? Because that's how it works. It's math. A currency quote is an equation. From what you believe then euros, us dollars, yen, aussie dollars, nz dollars, and pounds just by coincidence are being bought and sold in exact amounts at exact times and it just happens to equal the eurgbp rate at all times. This relationship exists and has to for several different reasons and frankly surprising that someone that has been trading for as long as you have refuses to accept it and/or can't understand it. I am done with this. Nothing else can be said. The proof is right in front of you face. Trade well.
  • #439
  • Apr 13, 2012 9:59am Apr 13, 2012 9:59am
Quoting Lonestar
Here's something for you Bob:

EU * UJ / AJ * ANZD / GBPNZD = EGBP

Do the math. How about I do it for you.

1.31463 * 80.981 / 84.264 * 1.25388 / 1.92092 = .82469

These were the current bids when I did this and it ends up exactly with the EUR/GBP rate. Why? Because that's how it works. It's math. A currency quote is an equation. From what you believe then euros, us dollars, yen, aussie dollars, nz dollars, and pounds just by coincidence are being bought and sold in exact amounts at exact times and it just happens to equal the eurgbp rate...
Yes nice math, interesting isnt it. Tell me after doing all that are you going to buy or sell? It is what I call worthless information. I dont trade the eur/gbp by EU * UJ / AJ * ANZD / GBPNZD is doing. I dont trade the eur/jpy by trading usd/jpy along with eur/usd. I trade the eur/jpy based on what it is doing. Your math formula has nothing to do with price action. That is the point. I understand that all the books around the world need to be balanced. OK. Now if you took all of that and started a thread showing people how they could hedge trade errrrrrrrrrrrr sorry nedge, maybe you got something. Does it give you SL locations, TP locatons, how about entrances and exits? Maybe you could take the formula and come up with a money management formula. It is nice to know the books are balanced. Now if you said when the EU EJ AJ ANZD and GBP/NZD do this then you sell the eur/gbp for a high probability trade then you get my attention. But showing that the books are balanced. Ehhhhhhh............
  • #440
  • Apr 13, 2012 10:11am Apr 13, 2012 10:11am
Quoting lyondegreat
Please,please and please,can you guyz just leave this hedging arguments and focus on something constructive,beneficial and contributive to this guyz(Nacho) thread before you over-hedge,underhedge or nedge his thread?
You're right. The original topic has nothing to do with hedging/nedging. It just irks me a bit when people start recommending nedging as a way to improve someone's trading, because it is mathematically impossible to do that. It shows inexperience and/or lack of logical thinking.

It is fundamental for a trader to understand what is going on "under the hood" when he/she makes a trade. Anyone who nedges, or advocates nedging as an acceptable risk management tool clearly demonstrates a lack of such understanding.
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