I had discussed on my previous post about hedging where it is the process of placing an order opposite with one another. There are two types of hedging, the first type of hedging is called the "perfect hedge". The "Perfect hedge" is placing a BUY and SELL at the same price level on the same currency pair. This strategy is commonly used in taking advantage of the interest and non interest forex broker. Let's say that the currency pair GBP/USD pays an interest when you place a BUY order while deduct an interest from you when you make a SELL order. The perfect hedge can be used by having two account with two different forex brokers. The first forex broker should be paying high interest rate while the other forex broker is a free interest rate or does not pay or deduct interest. You are going to place a BUY order at the interest paying broker and a SELL order on the non interest broker. All you have to do in this forex strategy is to transfer and balance your account between your two forex brokers to maintain margin call. Your profit on this forex strategy comes from the interest paid by the interest paying forex broker.
Another type of forex hedging strategy or commonly known as the arbitrage is by looking at a currency pair that is closely correlated with one another. One good example is the EUR/USD and USD/CHF. This two currency pairs are exactly correlated with one another and the perfect choice for the arbitrage strategy. The profit is taken on this arbitrage strategy when one currency pair earns a higher pips than the other with a lower amount of loss pips. As an example, when EUR/USD reaches a worth of +126 pips while the USD/CHF losses a worth of -50. You can close both currency pairs and you have successfully earned a worth of +76 pips. This arbitrage system has been tested by many forex traders and proven to be profitable. The only important aspect needed for this forex strategy is to maintain proper money management.
A Forex Strategy known as Hedging
There are several types of hedging the currencies of the forex market. Lets define first what a forex hedging means. Forex Hedging is the process of opening two orders with the same correlation. This means that when the first currency is moving up then the other should be going down.
If you open two orders with a SHORT or SELL entry and a LONG or a BUY entry then this is what they call a perfect correlation. You won't be able anything to profit on this type of forex hedging because of its perfect correlation. Most forex traders that use forex hedging strategy are looking for a pair of currency that doesn't perfectly correlate with one another. The slight uncorrelated prices between those currency pair is where the profit of the forex trader will come from.
There are a lot of successful forex trader using forex hedging as their strategy but there are also who complained that hedging is not a good forex strategy. The problem for this forex strategy is that you need to have sufficient balance in your account to sustain margin call.
If you open two orders with a SHORT or SELL entry and a LONG or a BUY entry then this is what they call a perfect correlation. You won't be able anything to profit on this type of forex hedging because of its perfect correlation. Most forex traders that use forex hedging strategy are looking for a pair of currency that doesn't perfectly correlate with one another. The slight uncorrelated prices between those currency pair is where the profit of the forex trader will come from.
There are a lot of successful forex trader using forex hedging as their strategy but there are also who complained that hedging is not a good forex strategy. The problem for this forex strategy is that you need to have sufficient balance in your account to sustain margin call.
Forex Strategies that are Revealed
You must be asking about yourself, Why do they have to reveal their Forex Strategies?. They should just keep it for themselves and don't share with others.
Actually no body are going to reveal their Forex Trading Strategy especially if they are generating a large income from it. I think it would be too dumb enough if a Forex Trader discovered a strategy that perfectly works and share or sell it to others.
I talk and exchange conversation among different professional traders and they said that there is no perfect or Holy grail strategy that will work for all the time. Most Strategies around that you can find are still undeveloped and on the testing process while others are commercial forex Strategy products.
This concludes that there is nothing to be Revealed in Trading the forex market. What is truly needed is to acquire a lot of information and do some experimental test.
Actually no body are going to reveal their Forex Trading Strategy especially if they are generating a large income from it. I think it would be too dumb enough if a Forex Trader discovered a strategy that perfectly works and share or sell it to others.
I talk and exchange conversation among different professional traders and they said that there is no perfect or Holy grail strategy that will work for all the time. Most Strategies around that you can find are still undeveloped and on the testing process while others are commercial forex Strategy products.
This concludes that there is nothing to be Revealed in Trading the forex market. What is truly needed is to acquire a lot of information and do some experimental test.
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