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Hedge Trading On The Forex Currency Market
By terryt
Trading on the forex market can be a volatile yet exciting form of investment and certainly has the potential of bringing vast rewards if done so properly.
However it should be accepted that forex trading could also be a very risky investment as the market can swing both in an upward and downward movement in a split second depending on the market conditions.
Some people, and indeed institutions, try to control these volatile market swings by hedge trading their investments.
For instance it is possible with some forex trading systems to hold both a long and short position on a pair, which means that you have both bought a lot of with a view to profiting from the rise and the fall of a pair.
For example a pair could be the Great British Pound as related in value to the US Dollar or GBP/USD, and the rise in this market would be referred to as a long position as opposed to a fall in this market, which would be referred to as a short position.
In practice what this would mean is that either way the market moves you are gaining on one position while you lose the equivalent amount on the other position.
The net result of this on first sight would suggest that you cant particularly loss money but also you cant gain any money so how can this be of any particular use in an effort to successfully trade on the forex.
Well of course no money can be made until you close one of the positions, which would be the one that is losing money while leaving the other position open that is gaining profit to move further and gain you an overall profit.
You could for example close the losing position at a 20 pips loss and then close the profiting position at a 40 pips gain, giving you an overall profit of 20 pips.
Pips
are the single value point movement of the and where the GBP/USD moves from 1.8800 to 1.8840 would be a 40 pips difference.
It should be remembered of course that a pair could well move in one direction and exceed your 20 pips level to close the position but then reverse in direction and never reach your targeted gain level of 40 pips so even hedge trading is not a guarantee of certain success.
The 20 pips loss level and 40 pips gain level are only used here as an example and if you use this method of trading you would be well advised to set your own levels that you feel are right and acceptable to your own trading experience and acceptable risk strategy.
All that can be said is that it does offer an alternative method of trading but should still be ventured into with predetermined loss limits and careful study of the market.
With most online forex trading sites a demo account can be opened first to help you experience what forex trading is all about and this is an ideal way to first get involved without any loss of real money. Copyright 2006 Terry Till
Find out more about the Forex and trading systems at:
ForexMiniTrader.com
Webmasters and ezine owners may use this article provided they leave all content and links in full contact and without alteration.
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Term commonly used when referring to the foreign exchange market.
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