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Hedging vs Stop Loss

  • #181
  • May 31, 2014 4:33pm May 31, 2014 4:33pm
Quoting saneblane
{quote} hHAAH. What a waste of time, all of this because you just can't see beyond the mental blocks you put up for yourself. Have a good day.
So you can't answer even a simple question about what a 2% gap would do to your account, you keep dodging with words because you can't put a number on it, because you don't understand. And you don't understand nedging and yet you want to lecture me and claim that I'm the bad one here. That's why you're angry, because you don't understand. Your broker offers 50:1 so you think that's the amount you use.

Do you want me to explain what leverage is? Or will it just be more irrelevant words and no number again?
  • #182
  • May 31, 2014 4:43pm May 31, 2014 4:43pm
Quoting SupraSense
{quote} So you can't answer even a simple question about what a 2% gap would do to your account, you keep dodging with words because you can't put a number on it, because you don't understand. And you don't understand nedging and yet you want to lecture me and claim that I'm the bad one here. That's why you're angry, because you don't understand. Your broker offers 50:1 so you think that's the amount you use. Do you want me to explain what leverage is? Or will it just be more irrelevant words and no number again?

Hahah. Hear we go again, I really can't stop laughing, I told you above I don't know anything didn't you see my post. You know it all that's why everyone is trying to tell you to shut up but you just wont listen.
Being a trader is lonely, but being a great trader is lonelier still
  • #183
  • May 31, 2014 4:46pm May 31, 2014 4:46pm
Quoting saneblane
{quote} Hahah. Hear we go again, I really can't stop laughing, I told you above I don't know anything didn't you see my post. You know it all that's why everyone is trying to tell you to shut up but you just wont listen.
Right, no number, you are unable to answer. It's such a simple question. More childish giggles of embarrassment from you.

If you wanted to learn, I'd be happy to explain. Everyone has to start somewhere. If you just want to laugh then go ahead.

I don't know it all. I know a very small set of things in the grand scheme. But anyway, I'll shut up, and you can carry on as you were.

Good luck to all. I hope my comments have at least made someone think and reflect a bit more on what they're doing.
  • #184
  • May 31, 2014 4:48pm May 31, 2014 4:48pm
Quoting SupraSense
{quote} Right, no number, you are unable to answer. More childish giggles of embarrassment. If you wanted to learn, I'd be happy to explain. Everyone has to start somewhere. If you just want to laugh then go ahead. I don't know it all. I know a very small set of things in the grand scheme. But anyway, I'll shut up, and you can carry on as you were.

Thank you, that's the best thing you said all day, you must learn to shut up and move on when you are wrong. Grabbing for straws Hahaha, unbelievable.
Being a trader is lonely, but being a great trader is lonelier still
  • #185
  • May 31, 2014 4:51pm May 31, 2014 4:51pm
Quoting saneblane
{quote} Thank you, that's the best thing you said all day, you must learn to shut up and move on when you are wrong. Grabbing for straws Hahaha, unbelievable.
It is unbelievable.

Another clueless poster. I'd advise as a general rule, that nobody takes seriously anything any poster says who
a) doesn't understand why hedging doesn't help
b) doesn't even understand how to calculate the leverage he is using.

Anyone satisfying a or b is clueless about the basics, and you can be pretty confident they won't be able to know anything advanced, like how to trade successfully.
  • #186
  • Edited 5:09pm May 31, 2014 4:52pm | Edited 5:09pm
Quoting SupraSense
{quote} It is unbelievable. Another clueless poster. I'd advise as a general rule, that nobody takes seriously anything any poster says who a) doesn't understand why hedging doesn't help b) doesn't even understand how to calculate the leverage he is using. Anyone satisfying a or b is clueless about the basics, and you can be pretty confident they won't be able to know anything advanced, like how to trade successfully.

Hahah here we go again, Enjoy your box Lol. Learn a lesson folks, numbers are not everything, and not everyone will do the same thing. Anyone who believes he has all the answers on paper is living in some fantasy in his head. I think I found my first candidate to ignore.
Being a trader is lonely, but being a great trader is lonelier still
  • #187
  • Jun 1, 2014 12:23am Jun 1, 2014 12:23am
Both can work. It depends on your trading style.

Personally I don’t hedge, and only use stops. But I only trade one position at a time, and my hold times are seconds to minutes (1-2 hours at most), with smallish targets. I never hold trades through major news events because of spread widening and slippage, and i never hold positions over the weekend. I like having a clearly defined risk-reward at the outset, and micromanage my trades once they open.

Hedging might be better for those with longer hold times, but it would require a bit of skill to work out which pair to use as a hedge as correlations don’t always hold. Then there’s the issue of position sizing, and when to break the hedge, plus the extra costs from spreads +/- commisions and possible swap cost if the swap on the hedge is negative. Benefits though are that you won’t get taken out during spread wideneding around news events, and if you hedge well, you have some protection against large weekend gaps.

Hedging in other markets is pretty common. For example SPY PUT’s could be used as a hedge against a predominantly long stock portfolio position.
  • #188
  • Jun 1, 2014 1:48am Jun 1, 2014 1:48am
Quoting SM02
Both can work. It depends on your trading style. Personally I don’t hedge, and only use stops. But I only trade one position at a time, and my hold times are seconds to minutes (1-2 hours at most), with smallish targets. I never hold trades through major news events because of spread widening and slippage, and i never hold positions over the weekend. I like having a clearly defined risk-reward at the outset, and micromanage my trades once they open. Hedging might be better for those with longer hold times, but it would require a bit of skill to...

Ahhh someone who actually understands what hedge really means.
  • #189
  • Jun 1, 2014 3:42am Jun 1, 2014 3:42am
Quoting SupraSense
{quote} Ahhh someone who actually understands what hedge really means.
So you agree with this statement then

Both can work. It depends on your trading style.

Eureka - you've finally accepted the premise that hedging can work after arguing for days with everyone here that it is a waste of time you just admitted you were wrong all along WOW! There is hope even for you.
  • #190
  • Jun 1, 2014 3:47am Jun 1, 2014 3:47am
Quoting stewrigh
{quote} So you agree with this statement then Both can work. It depends on your trading style. Eureka - you've finally accepted the premise that hedging can work after arguing for days with everyone here that it is a waste of time you just admitted you were wrong all along WOW! There is hope even for you.
Sigh....No, this discussion is on a level you can't understand. I've been right all along.

Hedging actually means to take up a position that reduces your risk. Buying put options when you have a long portfolio can be a hedge.

Going long and short the same instrument is not a hedge. It has nothing to do with hedging, but for some reason retail like to use the word hedge. Perhaps it makes them think it's sophisticated, like hedge fund. Except that what they're doing is going flat. What SM02 mentioned is real hedging.
  • #191
  • Jun 1, 2014 4:31am Jun 1, 2014 4:31am
Quoting SupraSense
{quote} Sigh....No, this discussion is on a level you can't understand. I've been right all along. Hedging actually means to take up a position that reduces your risk. Buying put options when you have a long portfolio can be a hedge. Going long and short the same instrument is not a hedge. It has nothing to do with hedging, but for some reason retail like to use the word hedge. Perhaps it makes them think it's sophisticated, like hedge fund. Except that what they're doing is going flat. What SM02 mentioned is real hedging.
And what better way to reduce your risk(to 0) than being flat?
  • #192
  • Jun 1, 2014 5:41am Jun 1, 2014 5:41am
Quoting SupraSense
{quote} Just stick to the numbers and answer the very simple question. If you USE 50:1 leverage, and the market gaps 2% against you, how much of your account have you lost?
Yeah, 2 X 50 = 100, at which point Margin would be called and and your balance would be zero, Instantly.

Now , my broker offers 50:1 leverage on my little account and I am happy with that. Right now I have taken a very, very aggressive position for me as tight as i will ever go I am at the limit I set for myself in Margin % of 250% (actually 255.72) and will not make any trades of any kind until I close some, first( in profit or loss).

If the market gapped evenly across all the trades I have open ( that would be a real phenomenon) 2% against me That would increase my P/L column 2% right?( it is always in the loss side: I very seldom leave a profit on the table).

with the number of trades I have open, that column varies 15&, 20% or a daily basis, and all I have done this past week is take profits. (except for one loss, where I miskeyed, said a word, and closed immediately.

On the whole, my p/l changed less than 1.5% for the week, while my equity grew 2%. For the week. Yeah , on a pace to double for the year. Since my equity is 5 times larger than my P/L, I am very happy with that.

Just how real is that threat of a 2% gap in the market to me?

Yet I don't use fixed stop loss.


I am not going to calculate how close to margin call a player using all 50% of his 50:1 leverage would be, But I can imagine that would have to be double what I ordinarily risk or more;

My advice to him is "Don't do that".

Somebody sees an opportunity, takes a one-time risk and makes out like a bandit, more power to him. But don't try it again. Risk less of your money next time.

Money management = don't lose it all back.

Leverage is nice, you get to have the broker carry your losses for a while with no cost to you. A bank won't do that.
Just don't abuse the privilege, and keep to the safe side of the margin, the more in your equity , the safer the side. That means when My equity move so much higher I will more my margin % limit to 3, etc.

Right now I have 22 buys open and 17 sells If you get a panic, and all the currencies try to go one way, My position won't move very much.

It would have to be "the perfect Storm" so all the sells go up, and all the buys go down, and they do so at a pace that will not let me close them out.

I would lay 50:1 odds, if I were a betting man, that I will die before that happens. (Don't take that bet, you don't know my medical condition).

Your theory is correct: But I don't see how that applies to me ( or saneblane for that matter, or any of the others that I follow)
  • #193
  • Jun 1, 2014 8:36am Jun 1, 2014 8:36am
Quoting SM02
Both can work. It depends on your trading style.
That was an accepted answer? That guy accepted that today Lol, I am shocked, the 2 of you must be best buds. That same answer was rejected a million times yesterday
Being a trader is lonely, but being a great trader is lonelier still
  • #194
  • Jun 2, 2014 1:13pm Jun 2, 2014 1:13pm
Interested thread so I had to register to contribute a little Anyway about hedging, I tried it both times on my small accounts and got wiped on both of them. Now that was all in a learning process which is still ongoing as I have been live trading for around 6 months out of 10 months when I started learning how to trade.

Now the problem I faced was of the psychological nature. I could see that the price is going against me and wanted to avoid the loss at all cost, which came eventually

After those endeavours I read what real hedging is all about and found out that such thing doesn't exist in spot Forex by those principles that are used in real hedging.

Quote
Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.


Quote
An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations.


Thus the real hedge with Forex would be if you are long on GBPUSD to buy PUT Options on GBPUSD so to offsett any losses if the spot GBPUSD begins to fall. Am I right on this? Still have lot to learn about Options
  • #195
  • Jun 2, 2014 1:31pm Jun 2, 2014 1:31pm
Quoting merquise
Interested thread so I had to register to contribute a little Anyway about hedging, I tried it both times on my small accounts and got wiped on both of them. Now that was all in a learning process which is still ongoing as I have been live trading for around 6 months out of 10 months when I started learning how to trade. Now the problem I faced was of the psychological nature. I could see that the price is going against me and wanted to avoid the loss at all cost, which came eventually After those endeavours I read what real hedging is all...
Yes. You are streets ahead of most on this thread.

Real hedging is a position taken to reduce risk. Buying put options when long is an example but not the only possibility.
  • #196
  • Edited 1:45pm Jun 2, 2014 1:34pm | Edited 1:45pm
Quoting Rap Skallion
{quote} Yeah, 2 X 50 = 100, at which point Margin would be called and and your balance would be zero, Instantly. Now , my broker offers 50:1 leverage on my little account and I am happy with that. Right now I have taken a very, very aggressive position for me as tight as i will ever go I am at the limit I set for myself in Margin % of 250% (actually 255.72) and will not make any trades of any kind until I close some, first( in profit or loss). If the market gapped evenly across all the trades I have open ( that would be a real phenomenon) 2% against...
Yes. So it tells us that taking leverage of 50:1 is a very risky affair, and that we should probably be using less unless we're gambling. If you intend to build an account over years, then you will want less leverage in my opinion. BEcause over several years, you are likely to see some sharp gap against. Reasonable isn't it?
  • #197
  • Jun 2, 2014 1:39pm Jun 2, 2014 1:39pm
Quoting saneblane
{quote} That was an accepted answer? That guy accepted that today Lol, I am shocked, the 2 of you must be best buds. That same answer was rejected a million times yesterday
You've misunderstood...again. The poster understands hedging, and so I agreed with him. He was not talking about going long and short at the same time, we don't call that hedging in the industry, we call that an idiot retail trader.
  • #198
  • Jun 2, 2014 1:52pm Jun 2, 2014 1:52pm
Quoting SupraSense
{quote} Yes. You are streets ahead of most on this thread. Real hedging is a position taken to reduce risk. Buying put options when long is an example but not the only possibility.
Thanks for the answer, and without the intent to drag the thread in another direction could you tell me about other possibilities of offsetting the GBP spot position in FX as an example?
  • #199
  • Jun 2, 2014 2:39pm Jun 2, 2014 2:39pm
Quoting SupraSense
{quote} You've misunderstood...again. The poster understands hedging, and so I agreed with him. He was not talking about going long and short at the same time, we don't call that hedging in the industry, we call that an idiot retail trader.
Have to disagree - being both long and short on the same pair at the same time has led to some of my biggest and most stress-free profits - if that makes me an idiot, I'm happy to be an idiot. Just because you can't see how to do it, doesn't make other people idiots. It's like a blind man calling someone else dumb for saying the grass is green.
  • #200
  • Jun 2, 2014 3:00pm Jun 2, 2014 3:00pm
Quoting hollowhead
{quote} Have to disagree - being both long and short on the same pair at the same time has led to some of my biggest and most stress-free profits - if that makes me an idiot, I'm happy to be an idiot. Just because you can't see how to do it, doesn't make other people idiots. It's like a blind man calling someone else dumb for saying the grass is green.
I'm with you hollowhead - idiot retail traders are the ones who think intraday is the only way....

As we both know, perfectly acceptable to have legs open in both directions and often far more profitable...
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