Hedging forex risks when trading currency for profit.?
If I were to trade USD/GBR on forex market, what sort of hedge would I use to reduce my level of risk? Ie would I buy other currencies at the same time, or use forward contracts / future contracts or even options. Which is the most common and effective.
Thanks
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Tagged with: Currencies • currency • forward contracts • GBR • hedging • profit • risk • sort • use
Filed under: Forex Information
One of the greatest things about Forex trading is that it is so risky and oh so rewarding!! We especially like it because of the uncertainty surrounding the market movements. That’s why the majority of us don’t use "hedge" trades or safety nets, except for stop loss orders. This gives you greater freedom of movement and more rewards on the upper movement. For example, when your trade goes up a few pips, your reward is that much greater because you have allowed room for your trade to breathe or grow. If it goes down, you are limited in your loss because of the stop loss order you have in place. This is how the game is supposed to be played. If you are concerning about losing your life savings, you are investing money you didn’t have in the first place and should find saver investments.
I would suggest it’s the other way around. You trade options and hedge using futures.Futures move exactly in line with the cash market whereas options are volatile. Make sure you understand the mechanics of hedging before you start trading or you will get things completely wrong.