Forex trading can be really tricky even if you already know what to do. Aside from the basic techniques you’ve already read about in expert trade reviews such as FXempire Forex Review and HQ Broker Review, there are also some other advanced techniques you ought to discover—and we’ll present them to you below. Read on!
Hedging means you take both sides of a trade at once. Your primary goal in doing this is to reduce risk.
Now, if your broker doesn’t have any fuss about you doing this, one good way is to place a long position and a short position on the same currency pair. Some other advanced, more experienced forex traders sometimes use two different pairs when hedging. However, that’s more complicated than you can imagine.
Let’s imagine: you want to go short on the EUR/USD because you figure that the trend heads that way. You now decide to begin shorting. After you finished placing that short, you suddenly realize that that pair somehow looks strong. You feel at risk because it might break upward. Thus, it could make your short an expensive one.
Now, what you will do is to look for other pairs. You find out that the USD/CHF moves inversely to the EUR/USD. To do hedging, you go short on the USD/CHF.
You get the gist: your short on the EUR trade can become a winner, and your USD/CHF can become the losing trade. Nonetheless, your risks and losses are minimized.
When you do position trading, you are basing your trade on your overall exposure to a currency pair. The position you have is your average price for the pair.
For instance, you can try to make a trade on EUR/USD at 1.40, and if the pair trends lower but you have this gut feeling that it can retrace up. You take another short at 1.42, your average position would become 1.41.
In the end, once the EUR/USD falls below 1.41, you can come back in overall profit.
When we say forex options, we refer to a deal to buy a currency pair at a price at a certain time.
To illustrate: suppose you are long on the EUR/USD at 1.40, and you figure that it would drop to 1.38 during the overnight trading. Of course, you wouldn’t want to risk a deeper reaction, so you decide to put a stop order at 1.3750 overnight. Your potential loss would be 250 pips.
It’s true, 250 pips sound like a huge loss. You’ll use a forex option to minimize the loss. You buy an option for the overnight time. You put 1.3750 as the strike price. If the EUR/USD climbs up and fails to touch 1.3750 throughout the night, you would end up losing the premium that you paid for the option.
Now, say the EUR/USD plummets and hits the option and the stop loss you set, you would get the profit from the option. It will depend on the amount of premium you paid and you would get the loss of your long trade on the EUR/USD. The profit you got from the option can make up for some of the loss on your currency trade.
Just some words of warning: do not try these strategies without further research and understanding. These are very effective strategies if applied well, but they can also cause major losses if you try to use them without being very careful.
You can always create your own way of trading. There will always be a chance for you imitate other techniques, but make sure that such tactics will suit your goals.