Hedging is perhaps the most misunderstood method of trading in the world.
Also, many traders believe there is something wrong with this trading method, as technically it is not permitted on US-based accounts.
However, if you take a closer look, there are many benefits to Forex hedging.
You may just change your mind.
Hedging has many benefits, but don’t forget there is no magic trading strategy that is guaranteed to make money.
The trading strategy used should be consistent with the nature of the trading and practice extensively to achieve mastery.
That being said, let’s get into it.
1. Less or no need for margins
https://www.youtube.com/watch?v=a2jkmgjdtbg
Depending on which broker you use, a fully hedged position requires no half of the margin, or at all.
For example, let’s say you are at the same time, you are a long one standard lot with a long standard lot and a short one standard lot.
If the margin for one standard lot is $250, then simply increasing $250 for both positions would normally cost $500.
In some brokers, if you have a fully hedged (1:1) position, you don’t need a margin at all.
This is a major advantage, as it allows you to double the opportunity for profit at basically half the cost.
Of course, you’ll also have twice the chances of losing money.
However, if you know what you’re doing and are practicing hedging strategies, it’s generally very good to use less margins.
It gives you more opportunity to get out of losing the deal.
Unfortunately, this does not apply when hedging with a US-based account. However, it is still possible to hedge with a US-based account
A little bit about that.
2. Possibility to make money in both directions
Almost all trading strategies require you to choose the direction in which the market appears to be moving.
Either top or bottom.
But with hedge, I can potentially make money in both directions.
I started long trading at the same time and had a demonstration with net profits in both trades.
In this way, it differs from other ways of trading.
Now, all fair, this can lead to overtrade, so it’s important to learn hedging in a demo or simulation account before putting your real money at risk.
But hedging gives me more opportunities and it makes my job easier.
If you want to learn more about hedging, be sure to read our beginner hedging guide.
3. Ability to wait for more information
This is a big thing.
I’ve ever thought prices would move in one direction, but when I saw more candles, it was clear that you were wrong about your initial prediction?
Of course, that happens all the time in trading.
The beauty of hedges is that I can wait until I take both directions and give a solid clue that the market will move in one direction.
This can be a huge advantage because in many cases the market throws away the “fake” before making a big move in the opposite direction.
I may be very certain about my initial position, but the picture can change quickly and the hedge gives me the ability to adjust.
4. Low stress
Sometimes I don’t feel like I’m going to trade.
When that happens, I can simply hedge my position and return to them when I feel better.
Certainly, I lose a bit of money in swaps.
However, the ability to take a break is valuable.
Try doing that using other trading methods.
Plus, I’m not stressed to worry even if I’m stopped from trade or rolling over.
If you’ve been trading for a long time, you know the feeling of sinking when you go check the charts, but it’s stopped again.
It’s not the best way to start your day.
You can get stopped multiple times in a row and it can start to ruin your confidence.
With hedging, there is no stop loss, so you don’t have to worry about stopping.
I simply hedge the lost position and move on.
Hedging still limits my risk and gives me the opportunity to benefit in either direction.
5. Possibility to earn passive income
There was a period when Japanese yen was a popular currency for trade. Because the difference in interest rates between the yen and the US dollar was so high that traders can simply make a profit from interest.
Traders were making a lot of money just by holding their position.
It was rumored that even Japanese housewives had swapped this method because it was so easy and reliable.
I know a trader who did this as her only strategy full time.
But all good things ended and trade ended up not working.
Some traders have lost their entire accounts.
However, when using hedging to target high-interest difference transactions, this method can be used in a shorter termbase, while limiting risk.
6. Large liquidity and low pricing
One of the reasons I like it Forex hedge Because the market is big.
Forex is the world’s largest trading market.
There are more traders to take the other side of your trade, so you are more likely to get the price on your screen and reduce slipping.
Other markets such as futures, options, and crypto are far less liquid, so they may not be able to get the price they need or even get into the trade at all.
Additionally, forex generally has lower transaction costs than other markets, particularly when trade scale is small.
Therefore, it is ideal for a wide range of traders, from beginners to professionals.
7. Maximum flexibility
Hedge and Pair scaling It’s powerful.
Scaling is opening and closing a trade of parts rather than taking an entire transaction in one large chunk.
For example, let’s say you want to trade in full size of three standard lots.
Instead of opening a trade in all three lots at once, I might start over one lot and see what the market does.
If the price isn’t doing what I expected, then I just hedge one lot rather than hedge three lots.
Scaling into trading also helps improve your average price than entering everything at once.
You can enter one lot to get started and then see what the price does. If the price action is still preferred, but moves slightly against me, I can enter trades 2 and 3 at a lower cost than the first one.
The same applies to my exit.
You can set three profit targets to earn small, medium and large profits.
If my last profit target is not hit and the price appears to return to my entry, I can simply close the deal with less profit than expected.
Next, double this possibility on both the long and short sides.
As you can see, using hedging and scaling together gives you the most flexibility in market flow.
8. Can be added to other trading strategies
Hedging can be a trading strategy in itself.
but, When combined with other trading strategies, it can be a powerful way to get out of a bad deal.
This is especially useful if you have a trading strategy with a high win rate, but you want to increase the overall return of the method.
If the trading goes wrong according to the rules of the strategy, you can get out of it with a hedge.
Again, before you can make a transaction, you need to learn how to “escape” hedges.
But it could be a great addition to an already profitable strategy.
9. More consistent returns
I personally found that hedging creates more consistent returns than most other trading strategies.
Depending on your skill level, individual outcomes will clearly differ.
I’m not saying you’re guaranteed to have a more consistent return, but in my experience it’s certainly possible.
I’ve combined this with less stress and flexibility, so I enjoy hedging.
10. Can be run on a US-based forex account
https://www.youtube.com/watch?v=zmjlbcefhxy
Contrary to general beliefs, you can Legally Hedging US Forex Accounts.
It is not a hedge in the traditional sense, but it is effective The same thing.
Hedging in the US is not that easy and requires more patience, but you can do it.
I don’t recommend itbut if you insist on using brokers in the US, know that it is possible.
Final Thoughts
Like other trading methods, forex hedging has its advantages and disadvantages.
It’s not for everyone.
But if this list of benefits appeals to you, read my free forex hedging guide to get you started on this underrated trading method further.
As always, start with a demo account and don’t forget to play money to complete your skills before putting your real money at risk.
