Forex trading can be as simple or as complicated as you want it to be. In the beginning forex, trading seems like it is simple. It seems like your only job as a trader is to pick what direction a currency pair is going to go and collect your profit.
Or, maybe you are thinking of trying to find a percent accurate forex trading system on the internet. If only it were that simple. Hedging is a way to reduce risk by taking both sides of a trade at once. If your broker allows it, an easy way to hedge is just to initiate a long and a short position on the same pair. Advanced traders sometimes use two different pairs to make one hedge, but that can get very complicated.
You decide to initiate your short. To do an advanced balancing act, you start looking at other USD pairs. Position Trading is trading based on your overall exposure to a currency pair. Your position is your average price for a currency pair. If the pair is ultimately trending lower but happens to retrace up, and you take another short at say 1.
A forex option is an agreement to purchase a currency pair at a predetermined price at a specified time. Not wanting to risk a deeper reaction, you decide to put a stop at 1. You purchase an option for the overnight hours with a strike price of 1.
The options profit would make up for some of that loss on your currency trade. Scalping is making a very short term trade for a few pips usually using high leverage. Scalping typically is best done in conjunction with a news release and supportive technical conditions.
The trade can last anywhere from a few seconds to a few hours. Many beginning forex traders start with scalping, but it does not take long to figure out how much you can lose if you do not have any idea what you are doing. In general, scaling is a risky strategy that does not pay well in comparison it's risk.
If you are going to make scalping trades, it is best to do them in conjunction with your overall trading position, not as a primary method of trading. Advanced Forex trading is about seeing all your options when you make a trade.
Aside from using masterful risk management and extreme caution, advanced trading can be an alternate way to make profits and control losses. Advanced trading techniques are just about using the markets behavior to your advantage.
Learning to use advanced techniques properly is what will give you the edge that will make you stand apart from the average trader. Updated October 23, Hedging Hedging is a way to reduce risk by taking both sides of a trade at once.More...