How do hedges work actually? - Page 2
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Thread: How do hedges work actually?

  1. #11
    Quote Originally Posted by ;
    Complex hedging egies don't usually mitigate risk, they just increase it in some obscure way that's easy to forget about.
    Haha - well said, and quite true.

  2. #12
    Quote Originally Posted by ;
    quote Why not? Control lot dimensions, enter suitably, use an proper stop loss. You do not want anything else. Simple is good. You have an advantage or you do not. Complex hedging egies do not usually mitigate risk, they just raise it in some vague way that's easy to overlook.
    It is actually not that hard. First though, you have to realise that trading is like running a business. You've got expenses or costs and you've got income. You just have earnings. Same is true for trading. You cant be correct and just make money.

    The simplest way to control your risk is through a simple money management egy. For example: lets say your trading account is $10 000. Now for any commerce you never risk more than 2% of your trading account. $10 000 x 2% = 200 maximum potential reduction.

    That means you can be wrong 50 times in a row before you've lost all your money. If Im wrong 3 days in a row I quit trading because something is wrong! Take some time out and make sure you are in synch with the market before trading again...

    good money management is probably the first and most important thing to get right. You can have the very best training and expertise time and money can buy, but if you dont understand how to secure your funds, you got nothing. A lot of new and novice traders attempt to substitute their earnings from day one by risking more than what they need to. Other trader's greed is the thing that pays a big part of our salaries!

    So, for people that are totally new at this , lets say you identified a potential installation to buy. You got your cease position, entrance and goal: entrance is at 100, cease is at 80 and your goal is at 140.

    That then means you can risk $10/pip ($200 / 20 pips risk = $10), you potential profit afterward is $10 x 40 pips reward = $400.

    So basically, you cant loose greater than $200 if you're incorrect, and you stand to make a profit of $400. Thats a 2:1 ratio

  3. #13
    Quote Originally Posted by ;
    quote It's really not that difficult. Though, you have to realise that trading is like running a business. You have expenses or overheads and you've got income. You have income. Same is true for trading. You cant be right and just make money. The simplest way to control your risk is via a simple money management egy. For example: lets say your trading account is $10 000. Now for any trade you never risk more than 2% of your trading account. $10 000 x 2% = $200 max potential reduction. This means that you can be erroneous 50 times...
    you just awakened a 4 year-old thread

    which has some right and some less appropriate answers in, but perplexed me because your response does not have anything to do with hedging eh!

  4. #14
    So did you! The info is stil applicable though to someone looking for replies...

    I was actually trying to describe that in the event that you've got good cash management you dont have to hedge. Perhaps if you're a long term trader it would be well worth looking at?

    See thelws article above...

  5. #15
    However, the answers are faulty. As there is no overall market risk in Currency Market (like it is in stock market) the information to never hedge in precisely the same asset class seems just a little bit incorrect.

    But I have never attempted to hedge forex and as the most traders are short term here, I dont think it is a fantastic idea to establish a egy on a hedge. But perhaps it works...

  6. #16
    Quote Originally Posted by ;
    I know hedges get the job done. People use it in order to handle risks. But how can it function? And just how do you qualify a pair (or numerous pairs) to hedge?
    They do not hedge w/ the exact same instrument. Like an oil refinery would hedge it's oil price by buying oil call options when it thought price was going up.

    If price didn't go up it wouldn't function as option, if price will return then it will and saves the difference. Because option costs are a superior (fraction of the initial instrument price payable on top), costs are easily managed.

    There's zero benefit to buying and selling the exact same security at the exact same time for a hedge. Altho there is some benefit to trading around a position. Ie: holding a long term position and trading short term transactions (which may or may not be the contrary direction) around it. The latter appears just like a hedge to an untrained observer, but it's function is very different.

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