How to Hedge Forex - Forex Hedging

Many retail FX brokers allow you to hedge an open position by opening a position that is the complete opposite. For example if you have one 10,000 long position open on GBP/USD, you could open a 10,000 GBP/USD short position. This would provide a complete hedge and the trader would not earn or lose, no matter how price moved.

Hedging forex can be incorporated as part of a risk management strategy. Hedging can be used to limit losses as well as lock in profits.

Partial hedges can also be done. If we go back to the example above with the long GBP/USD position. If this position was +200, the trader could open a 5,000 short position. This would effectively hedge half of the position, so half of the profit would be locked in and only the other half would be exposed to the risk of price fluctuation. To trade positions less than 10,000, you would require a broker that supports micro lots.

Some brokers do not allow forex hedging. If you open a position in the opposite direct with some brokers it can close the position. It is important to speak with your broker about this issue and fully test it on a demo account prior to incorporating hedging strategies into your trading.