Advantage of hedging:

Hedging can be a useful tool to the Forex trader. When you have an openposition, for example, you are long on a USD/JPY trade and you right click yourtrade on the VT platform, a menu will pop up and you have a choice to Hedgeyour trade.

If you click Hedge, you will automatically open up a position in the opposite direction at the current market price without canceling out your other position and without margin increase! In the above example you would now have a USD/JPY trade long and short. You will now neither gain or lose any equity in your account because the gains and the losses will cancel each other out.Hedge in an emergency: Hedging a losing trade won’t solve your problems, but it will:

1. Keep you from more losses 2. Give you time to think about what happened to your bad trade and 3. Give you a second chance. Some traders will hedge losing trades instead of stopping out their position, because they have a chance to win back the losses of the original bad trade.

Example: You are looking to Trade the Trend? so you go long on theEUR/USD, using the indicators in this guide. The indicators signaled BUYso you opened up a position. In case of a bad trade, you choose tohedge instead of using a stop loss (be careful when doing this). YourTrade the Trend’s indicators didn’t work and your position goes againstyou, you hedge your trade. Now you have a losing position and a winningposition going in the opposite directions. You didn’t use up any moremargin .

What do you do now?My recommendation: When your position is hedged, you are safe andyou won’t lose any more money in your account. Here is what you shoulddo:1. Wait until another chart set up occurs and proceed to step 4. or Exitthe trading platform.2.Wait till the next trading day or session3. Look for the DTF indicators the next day.4. Instead of opening up another position, simply get rid of the badposition that was hedged. So if the indicators the next day signaled long in the EUR/USD, like in the above example, then you would get rid of the short, losing hedge and hope that the price will rise enough to erase the previous days losses to make a profit.5. If your position moves against you again you can hedge that positionagain and repeat steps 1-4.Hedge a winning trade: You may also hedge a winning trade to protect yourgains, if you don’t want to completely close your position.

When you do this youwon’t gain or lose any more money with that position. The advantage to thiswould give you the opportunity to keep trading those positions in the future andgive you a break. You can always right click on your position and choose ?closewith hedge? to close both positions at once. If you hedge a winning position youcan follow the above steps 1-4 to keep trading your position the next trading day. Please note that hedging can get complicated. Try to keep it as simple aspossible and try not to have a web of hedged and un hedged positions open atthe same time as it becomes exponentially more difficult to keep track of, andwhat positions to let go etc...Hedging is also optional and you don’t need to learn how to use this tool if youchoose not to. You can be a successful trader by simply using stop and limitorders.

Disadvantage of hedging :Big disadvantage with futures is the fact that the futures market is much less liquid than the forex market. If you need to open a position whilst the futures market is closed it could be very difficult. Overnight contract do exist, but they tend to be very thinly traded which can often mean very high spreads.Another disadvantage is the execution of trades is often slower than the forex market, especially when liquidity is low. Also, leverage is much lower in the futures market. It is not uncommon for forex brokers to offer 200:1 leverage or even more. Leverage on futures contracts is much lower.Futures are used by international corporations to hedge their currency risks and also by traders seeking to profit from speculative positions.Foreign Exchange Rate Risk Exposure - Foreign exchange rate risk exposure is common to virtually all who conduct international business and/or trading. Buying and/or selling of goods or services denominated in foreign currencies can immediately expose you to foreign exchange rate risk.

If a firm price is quoted ahead of time for a contract using a foreign exchange rate that is deemed appropriate at the time the quote is given, the foreign exchange rate quote may not necessarily be appropriate at the time of the actual agreement or performance of the contract. Placing a foreign exchange hedge can help to manage this foreign exchange rate risk.
Interest Rate Risk Exposure - Interest rate exposure refers to the interest rate differential between the two countries' currencies in a foreign exchange contract.

The interest rate differential is also roughly equal to the "carry" cost paid to hedge a forward or futures contract. As a side note, arbitragers are investors that take advantage when interest rate differentials between the foreign exchange spot rate and either the forward or futures contract are either to high or too low.

In simplest terms, an arbitrager may sell when the carry cost he or she can collect is at a premium to the actual carry cost of the contract sold. Conversely, an arbitrager may buy when the carry cost he or she may pay is less than the actual carry cost of the contract bought. Either way, the arbitrager is looking to profit from a small price discrepancy due to interest rate differentials.

Foreign Investment / Stock Exposure - Foreign investing is considered by many investors as a way to either diversify an investment portfolio or seek a larger return on investment(s) in an economy believed to be growing at a faster pace than investment(s) in the respective domestic economy. Investing in foreign stocks automatically exposes the investor to foreign exchange rate risk and speculative risk. For example, an investor buys a particular amount of foreign currency (in exchange for domestic currency) in order to purchase shares of a foreign stock.

The investor is now automatically exposed to two separate risks. First, the stock price may go either up or down and the investor is exposed to the speculative stock price risk. Second, the investor is exposed to foreign exchange rate risk because the foreign exchange rate may either appreciate or depreciate from the time the investor first purchased the foreign stock and the time the investor decides to exit the position and repatriates the currency (exchanges the foreign currency back to domestic currency). Therefore, even if a speculative profit is achieved because the foreign stock price rose, the investor could actually net lose money if devaluation of the foreign currency occurred while the investor was holding the foreign stock (and the devaluation amount was greater than the speculative profit). Placing a foreign exchange hedge can help to manage this foreign exchange rate risk.

Hedging Speculative Positions - Foreign currency traders utilize foreign exchange hedging to protect open positions against adverse moves in foreign exchange rates, and placing a foreign exchange hedge can help to manage foreign exchange rate risk. Speculative positions can be hedged via a number of foreign exchange hedging vehicles that can be used either alone or in combination to create entirely new foreign exchange hedging strategies.


Forexgen White Labels

Forex White Label partnership allows the trader a quick access to the online foreign currency exchange market.
ForexGen provides two types of trading White Label partnerships, a limited and a full solution. ForexGen different types of forex White Label partners are able to access ForexGen's trading platform entirely branded under each partner's unique company image and name. We provide a customizable online trading platform for the different types of the two White Label solutions.