Successful Forex Hedging Strategies for 2021

Welcome to Wetten Australia’s comprehensive look at forex hedging strategies. The risk management strategy has been an important tool for inexperienced trader’s techniques for years and we will be looking at how you can use it.

You might have come across the term ‘hedging’ and just thought it was another among the list of infinite jargon within the online trading industry. You wouldn’t be incorrect but having a solid understanding of hedging may be exactly what you need to take your trading career to the next level. We will be running through all of the fundamentals here.

Why you should use forex trading hedging strategies

If you have started completing online transactions using forex, you will surely be looking to add some strategy to your trades in order to increase your chances of making some gains. There are plenty of strategies that experienced traders use when they are completing their transactions but not all of them will apply to your specific trading techniques. You will need to browse through all of the information surrounding the forex hedging strategies on this page and then take a look at your investment portfolio to determine if you can apply the strategy within your online trading techniques. If you are looking for some online service providers of the forex trading instrument, head to our forex broker in Australia page now.

With hedging, you are reducing the risk of your investment significantly by investing in all sides of the market. You are essentially covering your investment by backing both possible outcomes, the one currency performing while the other would depreciate in value. Initially, traders attempted hedging within the forex market by trading both sides of one currency pair. After some time, it was found that this strategy guaranteed a loss to any customer. This is due to the spread expenses and any transaction fees that are applicable to your online broker. While this approach is destined to fail, there are other variations that may prove to be more fruitful.

You might have come across hedging with other trading instruments, the key concept is to offset your losses with one investment by investing in the reverse outcome of your initial investment. Theoretically, any gains should then cancel out your losses of either investment. It is important to keep in mind that the more you attempt to reduce the risk of your investment, the fewer gains you will be eligible to receive. You will be able to trade with a certain degree of comfort while hedging but this strategy is usually used in conjunction with other techniques to minimise risk within your investment portfolio. Head to our forex trading reviews to take a look at some of the brokers on the market.

What is hedging

You might have come across the term of hedging while chatting to some colleagues who have experience with investing, or you might have just been watching a movie centred around the world of trading. Either way, the word itself does not give any clear indication of the meaning. The most common explanation of hedging would be investment insurance. If you decide to make use of forex hedging strategies, you are essentially minimizing the risk of a drastic swing with one of your investments resulting in losses.

When you hedge, you are likely to invest in one side of a currency pair, while placing an equal investment in the reverse side. This ensures that no matter what happens with the price of this pair, you are always going to make it again that is equal to your losses. There are many approaches to doing this and as with any strategy, some will work better than others. You will need to take a close look at your trading data to determine how you can apply this strategy. If you are new to the world of trading foreign currency, be sure to head to our forex trading for beginners page where we dive into the basics of the trading instrument.

How do successful forex hedging strategies work

If you think of online trading, you usually imagine an industry that involves plenty of risks. You are essentially placing your own money into the performance of a foreign currency. How the currency behaves is very difficult to predict as it relies on so many different factors and events. This usually scares off plenty of interested customers from the scene, but if you do your research and take a look at the strategies that some of the best traders make use of, you can quickly realise that the risk you are exposed to is completely dependent on how you conduct your transactions. Make sure to check out our how to trade forex in Australia page if you are looking to use forex trading hedging strategies.

To make forex hedging strategies work, you will need to do some research on the various currency pairs out there. Since hedging between two currencies is bound to make you a loss on your investment, traders realized that they can simply increase the number of currencies to three and hedge between all of them. For example, take the Australian Dollar, the Japanese Yen and the Pound. There are 3 combinations between each of these, that is AUD/JPY, JPY/GBP and GBP/AUD. You will then need to determine if your broker offers the option to trade all 3 of these currency pairs. Once you know the pairs are covered, you can then open along on two of the options and short the third. This will essentially mitigate any risk of the currency price performance.

If you are interested in an easier strategy than trading with the 3 currency pair strategy, you can consider trading forex using options. This will allow you the option to buy or sell the foreign currency at a specific rate and date in the future. By doing this, you could open a long trade with one currency pair, say AUD/JPY and a put option just beneath the current exchange rate. This will ensure that you either make gains with the long entry point or your put option will negate the losses of your other investment. If you are just getting started on the forex scene, check out our demo account page here at Wetten Australia.

Using the strategy

With the approach in mind, you can begin looking at how you can apply this strategy within your daily forex trades. The approach should be relatively similar to what we have mentioned before but you are able to use any combination of any three currencies to apply the hedging strategy. It is important to conduct the necessary research into the currency pairs that you are interested in. This will allow you to trade with a certain degree of confidence on the forex market and you can look at tweaking your hedged investments to potentially make some better gains. You can also take a look at our other forex strategies that we have detailed to see if you can apply them to your investments.

Not only will you need to have an insight into the currencies themself but you will also need to thoroughly understand the strategy itself. The benefit would be placing an investment with very little risk. The drawback would be that your profits are going to be near zero unless you shift the balance of the investment according to the price performance. You can use hedging to simply keep your money in a safe place but your losses may also mitigate your gains of one investment. So the strategy will require some research and monitoring of the data to try and tweak the balance to make some gains. When using the hedging strategy, it is important to use the forex broker with the lowest spread out there.

Having the right tools

By choosing a reputable online broker service, you are ensuring that you are covered when it comes to any issues that you might encounter in their service. If you have browsed through some of our broker reviews, you will quickly realise the cornerstones of each review. Customer service is one of the most important since the entire service offer is online and you are bound to run into a pesky bug at some point. By having a reliable customer service team, the broker ensures that your issues are resolved as quickly as possible.

Our experts also carefully consider the trading platform that is put on offer. Depending on what the broker has managed to put together, you will be able to analyse historical data of a specific market and gain valuable insights into where the price may be headed. Data analysis is essential when using forex hedging strategies, or any strategy for that matter. If you are interested in what other techniques you can look to apply to your trades, head to our forex scalping page now. Scalping is another popular strategy among traders but it will require a bit more of a time investment to be profitable.

Keep your options open

If you have been trading for a while, you would have surely come across the advice of diversifying your investments. The phrase has become a cliche for a reason as it is just another manner of reducing your risk. By investing in a number of options as opposed to one, you are eliminating the possibility of your investment crashing in one fell swoop. To do this, you will need to ensure that the broker service you have signed up for has plenty of trading instruments available. You should have access to stock trading, options and crypto.

By having many instruments, you will also have greater access to a wider variety of markets. You can have a piece of Tesla while also trading the AUD/JPY with some online brokers. To determine which broker service offer is for you, be sure to browse through some of our reviews where we take a close look at what they have to offer. You can also put together a list of your own requirements that are must-haves when it comes to online trading and cross-reference our reviews with your own needs. For more strategic approaches to online trading, head to our forex scalping strategy page.

Conclusion

This concludes our article on successful forex hedging strategies. The concept of hedging is essentially insurance on your investment and it can be powerful if used correctly. You will be able to eliminate most of the risk associated with online foreign currency trading by making use of hedging and this can be incredibly useful for active traders. Make sure that you have a thorough understanding of the concept before you consider applying it to your day-to-day trades. It is important that no steps are missed as you may be applying the strategy incorrectly.

Be sure to browse through the section on how the currency works so you can look at applying the technique to your specific trading style. You will be able to adjust the methodology to a certain degree once you feel comfortable with the forex hedging strategies. Then you will need to take the leap and begin using the strategy if it is appropriate to your investments. This can be done fairly easily but once again, take your time to consider the approach. Ensuring that your broker provides you with the necessary tools is crucial to your trading success and remember to keep your options to invest in other markets open.

Forex Trading Hedging Strategies FAQ

❓ What are forex hedging strategies?

Hedging is a risk management strategy that has been used for many years in many different industries. Understanding exactly what the term implies and how you can make use of it is important if you are looking to take your trading techniques to the next level. Our page will take a comprehensive look at the strategy and detail just how you can use it within your trading portfolio. Be sure to head to our page to find information surrounding this strategy and more, all free of charge. You will find all that you need to get started right here at Wetten Australia.

✔️ Are there any successful forex hedging strategies?

You might be under the impression that the vast amount of trading strategies out there are generally limited when it comes to success. Depending on how well you understand these strategies and how you intend on including them within your investment portfolio, you might have the wrong impression. You will be able to find detailed explanations of a variety of strategies within our service and we also run through exactly how you can use them to try and increase your chances of making some gains. Head to our page now to find out more about these strategies.

⚖️ Are forex hedging strategies legal?

Whenever you are transacting with real funds, you will need to consider if what you are doing is legal. There are plenty of online services out there and the competition between brokers has never been tighter. This has brought about many operators to pop up onto the scene without having any proven track record. Our broker reviews take a close look at each online operator and determine the legitimacy of their service. If you are ever in doubt of the legality of your transactions, it is always recommended to seek professional legal advice.

👨‍🏫 How can I learn to use forex hedging strategies?

If you have started your online foreign currency trading career, you will surely be hungry to find some strategies that you can use within your transactions. There are plenty of strategies that you will be able to find detailed on our page and we have written each guide to thoroughly describe how you can use them. You will find the latest information available here at Wetten Australia. Head to our page to find comprehensive articles surrounding each trading instrument and guides to all the strategies applicable to them. You will also find in-depth broker reviews of all the big names within the industry.

📗 What do I need to start forex trading?

Depending on what broker you are intending to sign up with, you will usually require a number of documents and details that need to be submitted before you are able to get started with online forex trading. Not only do our pages cover the quality of each broker’s service. We also take a look at just how you can sign up for their offer and what you will need to do so. There are so many offers out there, so be sure to browse through some of our reviews to get a clear indication of which operator has the right service for you. Head to our page now to find out all you will need to know.

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