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.
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.
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The following 2 users say Thank You to mattz for this post:
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.