Hedging in forex is holding two or more positions at the same time. The purpose is to offset the losses in the first position by the gains that received from the other one.

what will happen when you use “hedge” ?
Applying hedge means that you buy and sell the same amount of the same currency at the same time ,so it doesn’t matter in which way the market moves.
Many Forex traders incorporate hedging into their trading systems , already it can provide their trades with breathing space to reach their goals.
Hedging can protect us from unexpected price movements that could happen while important news or something. which means that you can increase your profits. But at the same time , it can double your losses instead of saving you. However, it helps you to save some profit to avoid big losses.

Let’s check the hedge on the chart to be clear for you.

First chart will be for a very successful Hedge which increased our profits.

The main order was buying , but the price went to the other direction. We find a good signal to sell , we sold and took some profits.
The price went back to the main order’s direction and we closed it also with profits.
So , we closed 2 successful positions ( the main order and the hedge )

 

The next chart is for another successful hedge.
the Main order closed with losses but the hedge let us to caught some profits.
Let’s check that chart.

On that chart , we opened a position ( Buy ) but the price went down. We found a good signal to sell and we caught it and closed the hedge with some profits. However , the price went down more and we had to close the main order with loses.

 

Now , we will see an example for unsuccessful hedge trade , which increased our losses.
Focus !

At first , we opened a sell position. The price went up , and we bought to catch some pips. But the price went down again.
We thought that everything will be okay and the price is going back for our main target so that we closed the hedge with losses . But unfortunately , the price went up again ! and hit the stop loss.
Bad end. Both of the trades closed with losses.

That is not everything about hedging , some trades use trading systems based on hedging. Also you can open more than a hedge trade at the same time.

We realized after the third chart that hedging is a very dangerous tool for traders , it can save you from losses and can double your losses too. So that you mustn’t use it without practicing on a demo. And again will tell about Money-Management which is very important while hedging.
Please , Please , Please , think well before using the hedge.
Hedging is the gun which you can use it for hunting more pips or destroying your Forex Account !

 

Written by /
Ahmed Elagouz