- Hold buy and sell positions in the same currency pair at the same time
- Enter the market without choosing a direction for the currency pair
- Opening two positions requires margin for only one position
Hedging is an advanced feature of FXCM's No Dealing Desk system. Hedging is enabled on all live and demo accounts, with the exception of JPY-denominated accounts.
How to Set Up a Hedged Trade
Hypothetical example of hedging a position.
Simply buy or sell a currency pair, then do the opposite. For example: buy 1 lot of EUR/USD:
Then, sell 1 lot of EUR/USD:
Now you have a hedged trade in EUR/USD. You can see in the "S/B" column the one position that you bought and the one that you sold. If the EUR/USD rises, you have a profit in the buy position and a loss in the sell position. If it falls, the exact opposite applies.
You can see your required margin in the "Usd Mr" column in the "Accounts" window. You are holding 2 lots of EUR/USD, but since this is a hedged trade, you need only to set aside $1,000 of used margin, which is the margin requirement for only holding 1 lot.
What is the margin requirement for maintaining a hedged position?
The margin requirement on the initial trade will be the standard required margin for trades on your account. For hedged positions, once the second leg of the trade is added, the margin requirement will be divided among the two positions.
How to Close a Hedged Trade?
Simply use a close, stop, or limit order as you would with any other trade. Each of the buy and sell positions needs to be closed separately.
When Should You Use Hedging?
Watch this video for an example of how to use hedging to trade in a range-bound market.
Can Hedging Be Turned Off?
Yes, hedging is an optional feature on live accounts. To disable hedging on your live FXCM account, simply contact us.
Click here for our contact information.
While the ability to hedge is an appealing feature, traders should be aware of the various factors that can affect their accounts. Spreads may widen, causing margin to diminish, potentially leading to the danger of a margin call. Pip costs and rollover may also cause a decrease in account equity, adversely effecting hedged positions. For more information about hedging strategies associated with the FXCM No Dealing Desk platform, please contact one of our sales representatives.