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Forex Stock Exchange Forum » Forex and Stock Trading English Forum » Forex School » What is hedging?

What is hedging?

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1attention What is hedging? Mon Aug 31, 2015 10:45 pm

SuperHero

SuperHero

Hedging is the act of undertaking two opposing positions of the same instrument. You are considered hedged when both trades are for the same volume.   Fully hedged positions will result in your margin requirement decreasing to zero.   For example, if you were to open a buy position for 1 lot of EURUSD, with a 1% margin requirement, this would be USD 1,000.  

To fully hedge your position, you would have to open a sell position for the same volume of EURUSD which would also require a margin of USD 1,000.   However, since your positions are now fully hedged, the margins of both trades negate each other.   Note, that in partially hedged positions, the required margin would be the difference between the required margin levels of each position.

2attention Re: What is hedging? Fri Sep 11, 2015 11:08 am

Vlad

Vlad

There are many factors that should be considered when you peform hedging currency risks on the Forex. The first is choice of the currency pair. It is better to use the currency pair with the largest difference in interest rates, for example, GBP / JPY. However, ask your forex broker, what percentage is calculated in such a case, because brokers can vary it significantly.

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