Using FOREX hedging strategies is a very popular way to trade in the foreign exchange market. There are many different methods to trade FOREX and traders usually use a variety of methods to do so. Hedging is one of the most popular ways to trade, however it is no longer allowed if you have a broker that adheres to National Futures Assocation rules. If you sign up with a FOREX broker that is not in the NFA, you can still employ hedging strategies in your account. For those that still wish to use hedging, there are a number of ways to do so. Here are the basics of hedging strategies in FOREX and how you can use them to your advantage.
What Is Hedging?
In order to know whether or not you would be interest in hedging in your FOREX account, you first need to understand what it is. With hedging, you are essentially placing a bet in both directions of the market. You are placing a buy and a sell order on the same currency. This allows you to hedge your bet and you could potentially profit from movement in either direction. If done properly, this can be a way to maximize profits and minimize risk from big market moves.
Pending Orders
One very popular way to implement hedging in FOREX trading is to use pending orders. With pending orders, you can place an order that will be filled when the market price reaches a certain level. You can place a pending order at a price above or below the current market price. Using pending orders and hedging can be implemented into several other FOREX trading strategies.
Range Trading
One strategy that implements both hedging and pending orders involves a daily range method. With this method, you need a currency that has a relatively small daily range. The currency needs to move in a relatively straight pattern across the chart. You want it to move up and then back down again within a certain range consistently. Figure out the ranges where it likes to reverse directions.
Place a pending buy order below the market price on the point where it usually likes to reverse and go back towards the top of the range again. Place a sell order at the top of the range. This way, you can take advantage of the trends of the currency and make some profit.
Breakout Method
Another way to utilize hedging and pending orders is to use a breakout method. This type of strategy works better on a currency that tends to trend instead of range. If the market is kind of going sideways at the moment, this can be a good time to implement this strategy. Place a pending buy order above the market and a pending sell order below the market. Then, when the market chooses a direction, you can benefit from the move. You will be covered if it decides to jump up or plummet suddenly.
