“Hedging” is when you open two trades in the same thing in equal sizes in opposite directions. When the second trade is opened, this has the effect of freezing the floating profit or loss, although it is often forgotten that the overnight charges on both trades will continue to apply and will almost always be a net negative at all retail Forex/CFD brokerages, generating a small loss every time the trades are allowed to remain open over 5pm New York time.
Hedging, at least in theory, negates the need to set a hard stop loss on either the long or the short trades which comprise the hedge. A further potential advantage of hedging is that as markets (especially Forex markets) tend to range most of the time, it can be possible to profit just from high volatility within a range by closing the long trade at a peak and the short trade at a trough.
Many brokers do not allow hedging, but some do. It is not strictly possible under U.S. regulations, although it is possible to have two opposite trades open of very slightly different sizes, so if the trades have relatively large sizes overall, it becomes possible to construct something like a 95% hedge. This means that if you are trading very large sizes, say something like approximately two full lots per trade, you still may be able to achieve a near-hedge even with a broker which does not technically allow hedging. However, some brokers do not allow open trades in opposite directions in the same thing at the same time at all. For these reasons, if you want to be able to hedge trades as part of your trading, you should consider opening an account with a Forex/CFD brokerage which explicitly allows hedging.
Brokerages operating under U.S. regulations do not offer hedging. Brokerages which do allow hedging typically cluster in less regulated geographical jurisdictions, and often offer the MetaTrader 4 trading platform as their featured platform of choice.
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