Hedging 101

Hedging 101

Hedging 101

Before you begin preforming complex trading actions, it's best to know the basics first. Though there are a lot of different actions a trader can do, we'll focus on “Hedging”. Hedging is basically minimizing the risk you are exposed to by preforming another investment that will counteract the first one. Hence, if one pair goes down and you invested a lot of money in that pair going up, once you'll Hedge, the effect of this decline will lessen.

There is, however, a downside to a small amount of risk, which is a small portion of profit that goes with it. The risk\reward ratio teaches us that the more you risk the more profit or lose potential you'll have. 

Hedging is mainly used to reduce the amount of money you're expected to lose. The most important thing you need to take in consideration is whether or not the amount of money you invest in hedging is worth it. Is the lose potential greater than the cost of the hedging itself?

The question is, if hedging is so unattractive with a low chance of profit, why do you need to educate yourself about it? Well, learning new strategies and trading ideas is always good. You'll have a better understanding on how the market works and eventually this knowledge will be reflected in a better portfolio. 

Start trading today and we'll help you become a pro. Open your account here

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