Forex and Money Market

As you begin to trade and delve deeper into the Forex market you’ll hear the term “hedging.” This is when you open a position to go short and one to go long, both at the same time. Many traders utilize this tactic when not exactly sure of what’s about to take place with a particular currency.

Let’s say you’re fond of the EUR/USD pair and reports of a rebounding American economy promise to improve the value of the U.S Dollar. On the other hand, reports also state that the Eurozone is unveiling a new program to speed up recovery from the recession. This might mean that the EUR could sore to new resistance levels. In this case you may opt for placing an order to buy the EUR and one to sell it. But by doing so, you won’t get rid of the risk factor. Keep in mind that you’ll probably earn in one position what you lose on the second.

So what strategy should you choose for trading the Forex? If you’re not sure of what to do, stay out of the market. While hedging sounds attractive, not all brokers will allow you to have simultaneous open positions with one same currency pair. And while if allowed you’ll offset the loss of one trade with the profit of the other, you’ll still be paying two spreads to your broker. So it’s up to you to decide. Is hedging in the currency market for you?