Hedging Technique - Very very low risk!
any ideas about normal hedging?
I do a what I call a dollar hedge, I buy equal amonts of GBPUSD, EURUSD, USDJPY, and USDCHF. I have a small target of 25 pips for whole basket. I use an EA. When it hits my target in dollars, it closes and opens up again. Longest it has taken for profit hit is 3 days, and sometimes it hits 3 times a day. Drawdown is present but contained because it is a hedge.
Hi bhale - interesting idea - any chance you could post the EA ? thanks
Also bhale - as soon as your postions make profit do you open another one ? Is that how it manages sometimes 3*25 pips in one day ? Thanks
I'm still forward testing, although I am testing using live and demo. I am working out the best profit target per lot also. I'm also making sure that the code is solid and nothing nasty can happen by letting it run 24/7 and not monitoring.
When finished, I will be giving it away to anyone who opens an account with selected brokers with me as introducing broker. This way, I can give a customer a solid, working forex solution at no cost to them. I will simply receive a percent of the spread and get paid by the broker, as well as the profits I make from my own account.
I will probably not offer it to the general pubic at first, as I want to make sure that there will not be any glitches in how things are set up. I will also be setting these up for friends and family, then when this is running smooth, I may offer it here.
I do a what I call a dollar hedge, I buy equal amonts of GBPUSD, EURUSD, USDJPY, and USDCHF. I have a small target of 25 pips for whole basket. I use an EA. When it hits my target in dollars, it closes and opens up again. Longest it has taken for profit hit is 3 days, and sometimes it hits 3 times a day. Drawdown is present but contained because it is a hedge.
bhale, would you be interested to tell us more about your method? Or if possible give us the EA to publish it on Welcome to My Fx Report - Forex Trading
Yanni
bhale, would you tell us more about your technique? If possible to add it on my website Welcome to My Fx Report - Forex Trading
Yanni
As stated above, I will be giving it away to anyone who opens an account with selected brokers with me as introducing broker. The concept and EA are not that hard to do. The added advantage I have are lots of rewriting and debugging, along with a long time of forward testing. Also, I will be offering to host the MT4 application on a dedicated server, so that you can be running 24/7 without the interruption of power or internet outages from your home.
IS there any type of stoploss with this or do you think the hedge adequatly covers you? How long have you tested this method? Clearly its worked well recently due to the drop in dollar and the accelerated pace of the gbpusd. I use basic simple hedge of eurusd and usdchf and that has done well for me as well recently, however, I also use poivot for entry and exit instead of target profit and continuosly paying spreads
Hedging will work best if the market trends like now for Bri/USD. I think almost all indicators will be able to catch good signal.
Nic
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Hedging is defined as holding two or more positions at the same time, where the purpose is to offset the losses in the first position by the gains received from the other position.
Usual hedging is to open a position for a currency A, then opening a reverse for this position on the same currency A. This type of hedging protects the trader from getting a margin call, as the second position will gain if the first loses, and vice versa.
However, traders developed more hedging techniques in order to try to benefit form hedging and make profits instead of just to offset losses.
In this page, we will discuss, some of the hedging techniques.
1. 100% Hedging.
This technique is the safest ever, and the most profitable of all hedging techniques while keeping minimal risks. This technique uses the arbitrage of interest rates (roll over rates) between brokers. In this type of hedging you will need to use two brokers. One broker which pays or charges interest at end of day, and the other should not charge or pay interest. However, in such cases the trader should try to maximize your profits, or in other words to benefit the utmost of this type of hedging.
The main idea about this type of hedging is to open a position of currency X at a broker which will pay you a high interest for every night the position is carried, and to open a reverse of that position for the same currency X with the broker that does not charge interest for carrying the trade. This way you will gain the interest or rollover that is credited to your account.
However there are many factors that you should take into consideration.
a. The currency to use. The best pair to use is the GBPJPY, because at the time of writing this article, the interest credited to your account will be 24 usd for every 1 regular long lot you have. However you should check with your broker because each broker credits a different amount. The range can be from $10 to $26.
b. The interest free broker. This is the hardest part. Before you open your account with such a broker, you should check the following: i. Does the broker allow opening the position for an unlimited time? ii. Does the broker charge commissions?
Some brokers charge $5 flat every night for each lot held, this is a good thing, although it seems not. Because, when the broker charges you money for keeping your position, the your broker will likely let you hold your position indefinitely.
c. Equity of your account. Hedging requires lots of money. For example, if you want to use the GBPJPY, you will need 20,000USD in each account. This is very necessary because the max monthly range for GBPJPY in the last few years was 2000 pips. You do not want one of your accounts to get a margin call. Do not forget that when you open your 2 positions at the 2 brokers, you will pay the spread, which is around 16 pips together. If you are using 1 regular lot, then this is around 145 usd. So you will enter the trades, losing 145 usd. So you will need the first 6 days just to cover the spread cost. Thus if you get a margin call again, you will need to close your other position, and then transfer money to your other account, and then re-open the positions. Every time this happens, you will lose 145 usd!
It is very important not to get a margin call. This can be maintained by a large equity, or a fast efficient way to transfer money between brokers.
d. Money management. One of the best ways to manage such an account is to monthly withdraw profits and balancing your positions. This can be done by withdrawing the excess from one account, take out the profits, and depositing the excess into the losing account to balance them. However, this can be costly. You should also check with your broker if he allows withdrawals while your position is still open. One efficient way of doing this is using the brokerage service withdrawals which is provided by third party companies.
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