It is one of the ways that traders use the forex market to protect their positions from the risk of potential loss arising from news and events affecting the global markets and hedging is a short-term approach to maintaining a long-term investment.
There are several ways to implement the hedge strategy, but the complex ones are followed by institutions and companies, and what really matters to the retail trader are two methods that are the most common:
🔸 Take the opposite direction
This method is followed when there is a negative change in one of the open positions, but this change is likely to be for a short period.
🔸 Use of Forex options
The trading platforms allow setting two limits, one for the stop loss (ST) and the other for the take profit (TP), and the trader determines the point at which each order is placed, so that he can protect his deal from loss.
🔸 Hedge Advantages
🔸 Reduces exposure of traders’ positions to sudden market changes.
🔸 It allows the trader to manage the financial portfolio which reduces the feeling of pressure of losing money.
🔸 It has access to positions that you cannot obtain in other ways.