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What is hedging in Forex?


Michael Nigelson
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Hi, thank you for inquiring!

Hedging in Forex is a move that you can take in order to protect your currency pair for the short term. Traders usually decide to use this option when they hear concerning news which may influence their currency pair in a negative way. There are two strategies that are most commonly employed when hedging.

The first one is to hold a short and long position simultaneously on a currency pair you choose to protect. It is also called a perfect hedge because it eliminates all possible risks but eliminates profits as well. 

The second strategy is to deploy an imperfect hedge, which partially protects the selected currency pair, this partial protection is selected by the trader, and it can be upward and downward, protecting from changes when the currency pair moves down or up. It eliminates some of the risks and some of the profits.
 

 

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