hedge forex positions with no loss
- Thread starter ilqar200
- Start date
No, as hard as I try to have no loss, I have never be able to get to no loss on any trade, if people were able to do so, you'd have more money than Buffet. Buying options to hedge are very good to do, but there are whipsaws of price where you can lose on the stock and on the option. And if you lack much experience, it will occur often. So you have to practice great deal to get percentages down enough to make it worth doing. It does add to fees you pay and much more time involved as hedges are like a very active insurance that is always changing.
MattZ
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Even if you find an underlying asset that is negatively correlated (historically) to your currency pair, you still face a risk that both would go in different direction in the short run. There is no perfect hedge.
Sure it is possible, but I don't quite understand the question. For example, say you are short EUR/USD. You can hedge that position withe the CME micro or full futures contract http://www.cmegroup.com/trading/fx/g10/euro-fx.html .
There won't be any loss (other than +/- on the bid/ask spread of each) but you won't make any money either (other than +/- on the bid/ask spread of each). There is some interest rate risk in this position, but you can hedge that too.
I probably don't understand the question.
I never understood what "hedging an fx position" means and what the benefits are. The cost of a hedge is most likely always more expensive than simply squaring the existing currency position. Offsetting the entire risk should always be done via a closing of an open positions. Hedges come in play when partial risk is unwanted and one wants to isolate against those partial risks. An index future or an index option comes to play to protect against market wide, systemic risk while wanting to expose oneself to firm specific risk. Specific greeks in options come to mind as well, but hedging an fx position does not make much sense in my book.
No free lunch. Ever.
If the drawdowns are causing anxiety, just own it and bump your size way down or switch products entirely. Just my 2 cent.
The term "hedging" in the fx world was introduced by bucket retail-oriented brokers who are in urgent need to bump up commission earned via spreads, which most of the such brokers mark up. Gullible newbies were convinced by shady sales men that it makes a difference to hold onto an existing position and open a new position to "hedge" the existing position. Truth be told, the existing position can be reduced or expanded and has the exact same profit and loss effect than trading in the same instrument. If I remember correctly anyone who is regulated in the US actually had to drop this whole "hedging" crap as it mislead investors.
An fx position can be broken down into the constituent currency exposures, say I hold a long 100,000 USDJPY position then I am currently long 100,000 USD and short 10,160,000 Japanese yen. Trading in the same instrument will simply adjust the exposures in both currencies, whether traded as a "hedge" or whether the original position is adjusted.
An fx position can be broken down into the constituent currency exposures, say I hold a long 100,000 USDJPY position then I am currently long 100,000 USD and short 10,160,000 Japanese yen. Trading in the same instrument will simply adjust the exposures in both currencies, whether traded as a "hedge" or whether the original position is adjusted.