Any suggestions on how I may hedge against EUR/USD. I want to protect myself against swings against me, while keeping my position. I'm trading the E6 future on CME. Thanks!
Hedging EUR/USD
- Thread starter esc_trader
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Hedging always incurs cost. Moreover, hedging with a different instrument (an option, for example) gives you a whole new set of risk parameters to worry about.
This makes sense when you are trying to offset risk in a complex or generally less liquid position (for example, hedging a large portfolio of equities using ES) because you are offsetting risk using a more liquid, cheaper-to-trade instrument that can be traded quickly and efficiently.
So, since Euro futures are simple and liquid themselves, why wouldn't you just sell out some of your position?
This makes sense when you are trying to offset risk in a complex or generally less liquid position (for example, hedging a large portfolio of equities using ES) because you are offsetting risk using a more liquid, cheaper-to-trade instrument that can be traded quickly and efficiently.
So, since Euro futures are simple and liquid themselves, why wouldn't you just sell out some of your position?
Try wrapping your position with 6e options. Tough play to profit from as your insurance costs are high.
Just looking for some future that's highly correlated to the EUR/USD.
I have used options, transaction costs too high. I'm fading extreme moves so I tend to double down on losers instead of setting stops.
Of course during extreme volatility is when this is very dangerous.
Although in this situation a spread is usually opening up between it, and other instrument that is highly correlated. That's what the hedge is for. Then, in a few minutes I'm looking to exit, but it turns a loser into a break-even usually. Need a high win % as this is for very short scalps.
I have used options, transaction costs too high. I'm fading extreme moves so I tend to double down on losers instead of setting stops.
Of course during extreme volatility is when this is very dangerous.
Although in this situation a spread is usually opening up between it, and other instrument that is highly correlated. That's what the hedge is for. Then, in a few minutes I'm looking to exit, but it turns a loser into a break-even usually. Need a high win % as this is for very short scalps.
Why a future? can't hedge in spot?
Was thinking about that yes.
Does "wrapping" mean buying options above and below the current price?
Indeed low leverage safe than high leverage, but might many retail trader prefer use high leverage to boosting opportunity, might because only start with small capital