Hedging is a technique that is quite difficult to master which is why new forex traders are almost always asked to not try it. Despite the recommendations, there are many new traders who are confident enough in their abilities to give hedging a try on the foreign exchange Sydney.
These traders need to be very careful because, even though they may have the talent to back their objectives, they might not understand hedging properly enough to try it on the Sydney foreign exchange. Consider the following carefully before you try hedging yourself.
Know Why You Want To Hedge
The most important consideration when it comes to hedging is why you want to do it on the foreign exchange Sydney. There are mainly three reasons for a trader to use hedging.
The first is to avoid a losing position from causing more financial damage; the second is to trade through the volatility of forex news releases; and the third is to maintain the sanctity of a long term position through periods of high volatility and low liquidity.
Take Overnight Interest Rates Into Account
It is extremely important for you to consider that hedging can cost you on the foreign exchange Sydney as well, especially if you leave hedged positions open for too long. The reason for this is that in some situations interest rates are applicable for positions that are left open overnight. As you will have two hedging positions, if you leave them open overnight then they will accrue costs.
Always Have An Exit Strategy
Hedging is a dangerous strategy to implement on the foreign exchange Sydney. This is particularly true if you do not have an exit strategy. Without a proper exit strategy, you could get stuck with your hedge trades indefinitely.
This means that your positions would remain open indefinitely but you would not be incurring any losses or profits from them. However, hedging positions stuck in the market can still be problematic.
Being Stuck In Hedge Trades Can Be Demoralising
Every day you begin trading in the forex market you will see your hedged positions stuck in the market. This can be quite demoralising for a trader who is new to the foreign exchange Sydney anyway.
In fact, it can start dominating your attention all the time as well where your mind gets consumed by trying to devise a way to get out of the situation. This would prevent you from availing other opportunities in the market.
Hedging Ties Up Your Money
Hedged trades can also tie up your money in the foreign exchange Sydney. If you started with a small account anyway then this could further reduce your operating capital and financially limit you from availing crucial opportunities in the market.
Seek Out Expert Help To Counter Stuck Hedge Trades
If you are new and have got stuck with hedged trades without an exit strategy then the best way you can get out of this is to devise a strategy or approach a more experienced trader to devise one for you.