What is hedging?

<p id="isPasted">It is a method of reducing your losses by opening one or more currency trades that offset an existing position. Hedging means coming up with a way to protect yourself against a big loss.&nbsp;</p><p>Hedging forex works by opening a position – or multiple positions – that move in a different direction from your existing trade. The hope is that you’ll create as close to a net-zero balance as possible.</p><p>While you could just close your initial trade, and then re-enter the market later, using a hedge means you can keep your first trade on the market, and make money with a second.&nbsp;</p><p>There are some brokers who allow you to place direct hedges. Direct hedging involves buying one currency pair, such as USD/GBP, directly. The same trade can also be placed to sell the same pair.&nbsp;</p><p>While the net profit of your two trades will be zero if you have both trades open, you can still make more money without assuming the additional risk if you time the market correctly.</p><p>The most important reason for using hedging is to limit your risk. If you, do it properly, hedging can be a big part of your trading plan. A trader should only use it if he or she understands market swings and timing. With no experience in trading, playing with hedging could quickly lead to your account balance being zero.</p>

<p>Forex hedging is done mainly when you're taking loans from another country or selling to another country.</p>

<p id="isPasted">A hedge is a way of protecting yourself against a big loss. If you buy car insurance, you're protecting yourself against a potentially costly accident.&nbsp;</p><p>You can think of a hedge in forex as insurance for your trade. A hedge is a way to reduce or cover the amount of loss you might incur if something unexpected happened.</p><p>You can place trades that are direct hedges with some brokers. If you are allowed to make a direct hedge, you can buy one currency pair, such as USD/GBP. You can also place a trade to sell the same pair.</p><p>When your two trades are open, the net profit of both trades is zero, but if you time the market just right, you can make more money without incurring any additional risk.</p>

<p id="isPasted">Forex hedging is the opening of a position in a currency pair that offsets any movement of another currency pair. Assuming the sizes of these positions are the same and that the price movements are inversely correlated, the price changes in these positions can cancel each other out while they’re both active.&nbsp;</p><p>The process of opening a forex hedge is simple. It starts with an existing open position—typically a long position—in which your initial trade is anticipating a move in a certain direction.&nbsp;</p>

<p><br>&nbsp;Hedging is an act of taking position in the financial transactions to offset potential losses that may be incurred by another position. A hedge can be constructed from many types of financial instruments, including insurance, forward/futures contracts, swaps, options etc. A hedged position limits loss as well as gains, since appreciation in one position is squared-off by depreciation in the other position and vice versa.</p>