Is there any hedging strategy that works in the long run? | Forex Factory

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Is there any hedging strategy that works in the long run?

  • #1
  • First Post: Apr 29, 2013 8:54pm Apr 29, 2013 8:54pm
Hello traders. I just want to ask, Is there anyone using hedging 2 pairs or 3 pairs with consistent profit for a long run ? For example hedging EU & UChf, EU & GU,etc.
Thanks for sharing your experience.
  • #2
  • Apr 29, 2013 9:08pm Apr 29, 2013 9:08pm
Quoting ronald_fsm
Hello traders. I just want to ask, Is there anyone using hedging 2 pairs or 3 pairs with consistent profit for a long run ? For example hedging EU & UChf, EU & GU,etc. Thanks for sharing your experience.
Not clear what it is that you are asking.

Quote
hedging EU & UChf,

If by this you mean for example
Buy EURUSD and "hedge" by
Buy USDCHF
Then you are not hedging, you are leaving yourself with the net position
Buy EURCHF

So instead of paying 2 lots of spread, why not just buy EURCHF?
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  • #3
  • Apr 29, 2013 9:25pm Apr 29, 2013 9:25pm
If you're good enough to make profit by hedging, then you're good enough to make profit without hedging.
  • #4
  • Apr 29, 2013 9:56pm Apr 29, 2013 9:56pm
Quoting Gumrai
{quote} Not clear what it is that you are asking. {quote} If by this you mean for example Buy EURUSD and "hedge" by Buy USDCHF Then you are not hedging, you are leaving yourself with the net position Buy EURCHF So instead of paying 2 lots of spread, why not just buy EURCHF?
Yes, that's correct. buy eurusd and buy usdchf at the same time, and maybe averaging position until net position become positive
  • #5
  • Apr 29, 2013 10:50pm Apr 29, 2013 10:50pm
you can trade hedge and make good profit

i hedge some times .i trade gbp pairs for hedge usually long gbpusd short gbpaud long gbp cad long eur gbp i place trades in all with same size eurgbp may be bigger some times like double in size i think take profit after a while try it out you can add usd cad and aud usd they will be both long you have to add them both if you want to add jpy as in gbp jpy you go long gbpjpy three double the size of short gbpjpy

as i said you wait for net position to accumulate it may take a week small size traders can trade with oanda and use them i used to hedge from a long time ago about 8 years so i know what i am talking about you can try with demo place trades and place them here to see results

all have a nice day
focus while relaxed to see better
  • #6
  • Apr 29, 2013 11:56pm Apr 29, 2013 11:56pm
Quoting Gumrai
{quote} Not clear what it is that you are asking. {quote} If by this you mean for example Buy EURUSD and "hedge" by Buy USDCHF Then you are not hedging, you are leaving yourself with the net position Buy EURCHF So instead of paying 2 lots of spread, why not just buy EURCHF?
Quoting ronald_fsm
{quote} Yes, that's correct. buy eurusd and buy usdchf at the same time, and maybe averaging position until net position become positive
This is not hedging. As I have already pointed out. this will leave you with a net position being long on EURCHF (as long as position sizes are balanced)
The only way that you can possibly make money is if EURCHF rises. So there is absolutely no point in opening 2 positions when you will achieve exactly the same by opening 1 position on EURCHF. If 2 positions you will also pay extra spread, so you actually lose out.
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  • #7
  • Apr 30, 2013 12:02am Apr 30, 2013 12:02am
Quoting Gumrai
{quote} {quote} This is not hedging. As I have already pointed out. this will leave you with a net position being long on EURCHF (as long as position sizes are balanced) The only way that you can possibly make money is if EURCHF rises. So there is absolutely no point in opening 2 positions when you will achieve exactly the same by opening 1 position on EURCHF. If 2 positions you will also pay extra spread, so you actually lose out.
Exactly. So many people have a hard time understanding NET EXPOSURE. Each currency stands on it's own. You are either exposed to the long side or the short side. No jibber jabber, hocus pocus or voodooo hedging can change that.
Attached Image
  • #8
  • Apr 30, 2013 12:07am Apr 30, 2013 12:07am
Quoting 2+2=4ex
{quote} Exactly. So many people have a hard time understanding NET EXPOSURE. Each currency stands on it's own. You are either exposed to the long side or the short side. No jibber jabber, hocus pocus or voodooo hedging can change that. {image}
This subject comes up in one form or another and I fail to understand why so many people are unable to grasp the fact that they either have net exposure which relies on the performance of a single pair, or a perfect hedge, where it is impossible to even recover the spread.
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  • #9
  • Apr 30, 2013 1:21am Apr 30, 2013 1:21am
Quoting orabi
you can trade hedge and make good profit i hedge some times .i trade gbp pairs for hedge usually long gbpusd short gbpaud long gbp cad long eur gbp i place trades in all with same size eurgbp may be bigger some times like double in size i think take profit after a while try it out you can add usd cad and aud usd they will be both long you have to add them both if you want to add jpy as in gbp jpy you go long gbpjpy three double the size of short gbpjpy as i said you wait for net position to accumulate it may take a week small size traders can trade...
Thanks for your reply. so you use 4 pairs hedging ,3 pairs hedging and 2 pairs hedging also? Do you still using this strategy about 8 years till now? thanks for your kind reply .
  • #10
  • Apr 30, 2013 5:37am Apr 30, 2013 5:37am
I am doing hedging on Eur/Jpy. Now it is tricky because if the market is ranging you can be stuck and got loss in both your positions. The main idea is to catch up the trend early and close the position which is in loss and let the winning run.
  • #11
  • Apr 30, 2013 6:48am Apr 30, 2013 6:48am
Quoting hedging
I am doing hedging on Eur/Jpy. Now it is tricky because if the market is ranging you can be stuck and got loss in both your positions. The main idea is to catch up the trend early and close the position which is in loss and let the winning run.
So what are you saying?
Open 2 positions in opposite directions when you have no idea where the market is going?
When you see a trend forming, you close the losing trade?
Why not just wait until you see a trend forming and open a trade in that direction? That way you don't lose the spread on the losing trade.
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  • #12
  • Apr 30, 2013 9:21pm Apr 30, 2013 9:21pm
Quoting hedging
I am doing hedging on Eur/Jpy. Now it is tricky because if the market is ranging you can be stuck and got loss in both your positions. The main idea is to catch up the trend early and close the position which is in loss and let the winning run.
Do you trade only eur/jpy with hedging, or do you hedging with other pair ?
  • #13
  • Apr 30, 2013 10:09pm Apr 30, 2013 10:09pm
Quoting ronald_fsm
{quote} Yes, that's correct. buy eurusd and buy usdchf at the same time, and maybe averaging position until net position become positive
Please find an attached excel spreadsheet that has some results for buy eurusd and buy usdchf at the same time, position sizes are balanced at $100,000. Results do not account for spread.
The first highlighted column shows the result of holding these 2 positions only. Shows how big the losses can get, how long would you be prepared to hold these positions hoping that they eventually come back to BE ?
The 2nd highlighted column shows the result of just trading EurChf. As you can see almost exactly the same.
The 3rd highlighted column is the result of adding a sell EurChf to make a 3 way hedge. Very little deviation and as these results do not take spread into account, I am sure that you can see that it is impossible to earn money.
Attached File(s)
File Type: xls Hedging.xls   538 KB | 675 downloads
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  • #14
  • Apr 30, 2013 10:46pm Apr 30, 2013 10:46pm
Quoting hedging
I am doing hedging on Eur/Jpy. Now it is tricky because if the market is ranging you can be stuck and got loss in both your positions. The main idea is to catch up the trend early and close the position which is in loss and let the winning run.
...
Attached Image
  • #15
  • Apr 30, 2013 10:48pm Apr 30, 2013 10:48pm
Quoting Gumrai
{quote} So what are you saying? Open 2 positions in opposite directions when you have no idea where the market is going? When you see a trend forming, you close the losing trade? Why not just wait until you see a trend forming and open a trade in that direction? That way you don't lose the spread on the losing trade.
...
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  • #16
  • Apr 30, 2013 11:27pm Apr 30, 2013 11:27pm
The original purpose of a hedge was to reduce the uncertainty of company profits.(it is very complicated )

Many retail traders like to hedge because they don’t want to admit that they made a bad trading decision.

salaam
  • #17
  • May 2, 2013 12:53am May 2, 2013 12:53am
Quoting mr.kho
The original purpose of a hedge was to reduce the uncertainty of company profits.(it is very complicated ) Many retail traders like to hedge because they don’t want to admit that they made a bad trading decision. salaam
Actually the purpose of hedging multi pair is to reduce the drawdown because we can't predict the market. If we could predict the price, off course we don't need hedging
  • #18
  • May 2, 2013 1:27am May 2, 2013 1:27am
Quoting ronald_fsm
{quote} Actually the purpose of hedging multi pair is to reduce the drawdown because we can't predict the market. If we could predict the price, off course we don't need hedging
Totally wrong. Mr Kho understands more about hedging than you do.

Hedging multi pairs in the same market is either
unbalanced and so will always break down to a net position either long or short on one or maybe more pairs.
balanced and so it is impossible to make a profit

Suppose someone was flipping a coin. It costs you $1 to call and if you are right he will give you $1.90

Now ask yourself:-
Would anyone in their right mind call heads, but also "hedge" it with an additional bet on tails?

As Mr Kho so correctly points out
An airline may be concerned about rising fuel costs so they may hedge by trading in a futures contract or option so that they are limiting their exposure to possible rising costs.

Hedging trades with opposing trades in the same market is pointless,

Did you look at the excel spreadsheet that I posted earlier?
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  • #19
  • May 2, 2013 7:12am May 2, 2013 7:12am
Quoting Gumrai
{quote} Totally wrong. Mr Kho understands more about hedging than you do. Hedging multi pairs in the same market is either unbalanced and so will always break down to a net position either long or short on one or maybe more pairs. balanced and so it is impossible to make a profit Suppose someone was flipping a coin. It costs you $1 to call and if you are right he will give you $1.90 Now ask yourself:- Would anyone in their right mind call heads, but also "hedge" it with an additional bet on tails? As Mr Kho so correctly points out An airline may...
So what do you think about hedge fund manager? don't they do hedging the market?
  • #20
  • May 2, 2013 11:41am May 2, 2013 11:41am
Quoting ronald_fsm
{quote} So what do you think about hedge fund manager? don't they do hedging the market?
If you suggested to a hedge fund manager that it is a good idea to take opposite trades in the same market, you would have to wait for him to get up off of the floor and stop laughing before he could reply to you.

A hedge fund manager may, for example, consider that a pharmaceutical company will outperform other companies in the same sector. He is aware that when the stock-market falls, good performing companies are dragged down with the bad.
So he may buy shares in the company and offset his exposure by shorting the Pharma sector or the index
The theory behind this is that as long as the company outperforms its peers, the price should not fall as much as the others in the sector if the market as a whole drops.
A hedge fund manager may be bearish with oil, but knowing that any little upset can push oil prices higher, He may short oil futures, but limit his risk with an option to buy at a predetermined strike price.
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