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I am a trader from the U.S. and since no forex hedging is allowed in the U.S. I would like to know if there is a way to create a hedge for any spot forex currency pairs that is hedged 100%? I only know of 3 possible ways, but I have not tried them so I was wondering how effective they are?
1. I could hedge with futures, 2. with options on futures, or 3. with 2 other currency pairs to create a synthetic pair. But what I need to know is if these approaches hedge my position on a 1 to 1 ratio, where the hedge is perfect? I'm not sure if the futures move 100% in tandem with the spot pair, and with options I have to worry about the delta changing as price moves, and with the synthetic pairs, I'm not sure how strongly it hedges. Any help would be GREATLY appreciated! Thanks.
Can you help answer these questions from other members on NexusFi?
Yet, what FX guys call a "hedge" is to stop the loss in some artificial way where they locked in a long/short position thinking they can untangle their way out of it. It's like buying/shorting a further out month in an opposite way to your current position. It does nothing in my opinion. I do not recommend these tactics.
Matt
Optimus Futures
There is a risk of loss in futures trading. Past performance is not indicative of future results.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
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Everything you both say is correct... But I am well aware of the perils of hedging. I am not a naive trader looking for a way to avoid a loss. My normal strategy hinges entirely on strict money mgmt. with extremely tight stops and I never hedge because all hedging does is lock in a loss that must eventually be made up. So I always immediately cut my losses... But the hedging info I am requesting is for a completely different strategy and reason which I would rather not divulge. Any info you could provide is appreciated.
None of these would give you 100% perfect hedge for forex.
1 - due to the spread
2- if you intend to hold the position overnight for spot forex, you have to deal with the swap rates which is different for buy/sell position.
Even if you could take both a sell and buy position at the same time it would not give you a perfect hedge again due to the 2 reasons above
Theoretically speaking if a trade is 100% hedged would also mean there will be no profit or loss; otherwise it is not 100%. So we generally do not wish to have a perfect hedge.
But I can think of one reason why you want to have a 100% hedge in spot forex.
