"Hedging" in Forex trading -Why do it? - page 2

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Amir Yacoby:
Well, again, your interpretation to hedging is BUY 1 LOT and SELL 1 LOT - this we agree is useless.

My interpretation is whenever you have 2 opposite orders, it can be viewed as hedging (this is what MQL5 does not allow, even on different strategies as I suggested).

And, like MQL5 - you could still work on 2 strategies without hedging, with net positions (when you have 0.1 LOT long and you want 1 LOT short, you can close the 0.1 and open 0.9 short) -
but it would make the managing less straight forward.

Me and you now talk semanthics, so I suggest we leave it at that as we both agree about the meaning.

Your previous description is not hedging at all, so better to use an other name.

What is described in this topic is not hedging either (Keith's original post), it's usually named locking.

Metaquotes naming their MT5 account hedging is pure marketing. Allowing to open several position on same symbol has nothing to do with hedging.

 
Amir Yacoby:
Spreads got very wide?
Yes exactly. Widen spread created a serious discrepancy between BUY and SELL orders, equity and margin level fell.
 
Alain Verleyen:

Your previous description is not hedging at all, so better to use an other name.

What is described in this topic is not hedging either (Keith's original post), it's usually named locking.

Metaquotes naming their MT5 account hedging is pure marketing. Allowing to open several position on same symbol has nothing to do with hedging.

When you have brokers that don't allow hedging, or the US low that does not allow hedging - It means that you can not do what keith suggested, neither you can not do what I suggested.

Meaning that the US low sees the term "hedging" as I see it, any two orders in the opposite directions.

Still, I don't mind to use a differnet name if the naming does not appeal to any one - what makes it again only semanthics.

 
Alain Verleyen:

Your previous description is not hedging at all, so better to use an other name.

What is described in this topic is not hedging either (Keith's original post), it's usually named locking.

Metaquotes naming their MT5 account hedging is pure marketing. Allowing to open several position on same symbol has nothing to do with hedging.

Well, outside of the "locking" scenario, there are also several methods that hedge Forex in the more traditional sense i.e. opening concurrent trades on correlated pairs. Is that what you mean?
 
Amir Yacoby:

When you have brokers that don't allow hedging, or the US low that does not allow hedging - It means that you can not do what keith suggested, neither you can not do what I suggested.

Meaning that the US low sees the term "hedging" as I see it, any two orders in the opposite directions.

Still, I don't mind to use a differnet name if the naming does not appeal to any one - what makes it again only semanthics.

From what I know, the US law (NFA) is exactly what I am saying, it rejects "false" hedging and allow actual hedging.

They even sometimes use quotation marks when talking about "hedging" :

The other trading practice NFA believes must be addressed involves a  strategy that FDMs re fer to as “hedging,” where customers take long and short positions  in the same currency pair in the same account.

It's NOT only semantic.
 
Alain Verleyen:

From what I know, the US law (NFA) is exactly what I am saying, it rejects "false" hedging and allow actual hedging.

They even sometimes use quotation marks when talking about "hedging" :

It's NOT only semantic.

As far as I know, us law restricts all kind of hedging, there is no false or valid hedging for a us citizen. He needs two accounts to deal with different strategies on same currency (They also not mention same size orders or not, which supports my view).
I don't interpret it the same as you. There are those "forex" cluless sites that refer to hedging as a strategy - and make people mistake and regard it as "something" while it's pure nonesense.
They usually say it's related to managing risks.

This is the whole origin of Keith's question, because those sites are the ones that "market" something that's called hedging on same currency, as something worth looking at.
Other then those sites, hedging on same currency is not valid at all, there is no financial use for it. This is the reason they put qutation marks in "hedging". To take those false terms out.
Meaning, there is no risk managing thru hedging on same currency even though those cluless sites say there is.

Anyway, this was what I thought even before Keith's post, that this term is misleading and it is on forex sites that do not know what they say.

 
honest_knave:
Well, outside of the "locking" scenario, there are also several methods that hedge Forex in the more traditional sense i.e. opening concurrent trades on correlated pairs. Is that what you mean?

Yes.

  • Hedging is covering your trade(s) (risk) on different symbol(s) (not necessarily on correlated pairs, as this implied Forex). Don't forget that Forex is not the only way to trade, by far. 
  • Locking is what Keith's is describing and which is very widely named, improperly, hedging. And which actually doesn't hedge anything, is dangerous as I explained too, and most probably useless as well described by Keith.
  • Being able to trade different strategies on the same symbol, as described by Amir, is a completely different thing. (Amir can name it hedging if he wants, but it's just plain wrong and confusing). Of course it's easier to do on MT4 or on MT5 with "hedging" account. But it can also be done on an MT5 netting account, though it's of course more complicated.
By the way, it's not what "I" mean, it's all facts. Try to discuss with a Stock or a Futures trader and you will see.
 
PS! I have also seen it being called "nedging" which stands for "Newbie Hedging". I am referring here to the "false hedging" or the "locking".
 
Alain Verleyen:

Yes.

  • Hedging is covering your trade(s) (risk) on different symbol(s) (not necessarily on correlated pairs, as this implied Forex). Don't forget that Forex is not the only way to trade, by far. 

Indeed! hence the:

honest_knave:
Well, outside of the "locking" scenario, there are also several methods that hedge Forex in the more traditional sense i.e. opening concurrent trades on correlated pairs. Is that what you mean?

 

Alain Verleyen:
  • Locking is what Keith's is describing and which is very widely named, improperly, hedging. And which actually doesn't hedge anything, is dangerous as I explained too, and most probably useless as well described by Keith. 

I am rather open-minded on the topic. I agree that locking (I'll stick with that terminology for this discussion) is not a viable trading method in isolation; it fully depends on the underlying system that it is being implemented through. As I outlined early on, there are methods whereby locking is quite commonly used but it isn't for me.

 

Alain Verleyen:
  • Being able to trade different strategies on the same symbol, as described by Amir, is a completely different thing. (Amir can name it hedging if he wants, but it's just plain wrong and confusing). Of course it's easier to do on MT4 or on MT5 with "hedging" account. But it can also be done on an MT5 netting account, though it's of course more complicated. 

Inadvertent locking, for want of a better phrase. Or perhaps coincidental locking. It could just as easily result in a martingale as a lock.

 

Alain Verleyen:

By the way, it's not what "I" mean, it's all facts. Try to discuss with a Stock or a Futures trader and you will see.

I have some sympathy with Amir's position.

Words have the meaning that we, as people, attribute to them.

Often a word or phrase can be used incorrectly so frequently that people still understand the meaning.

I like your phrase "locking", but in my experience the common parlance for what Keith described in his first post is "hedging". Which is why I suspect he used it.

The English language does not have a definitive governing body like the Académie française. That means that many matters are up for debate.

In the absence of a copy of the Oxford English Dictionary, consider the translation provided by Google:

hedge
hɛdʒ/
noun
noun:hedge; plural noun:hedges
  1. 1.
    a fence or boundary formed by closely growing bushes or shrubs.
    "a privet hedge"
    synonyms:hedgerow,row of bushes,fence;More
  2. 2.
    a way of protecting oneself against financial loss or other adverse circumstances.
    "index-linked gilts are a usefulhedge againstinflation"
  3. 3.
    a word or phrase used to avoid overprecise commitment, for exampleetc.,often, orsometimes.
    synonyms:equivocation,evasion,fudge,quibble,qualification,qualifying expression;More
verb
verb:hedge; 3rd person present:hedges; past tense:hedged; past participle:hedged; gerund or present participle:hedging
  1. 1.
    surround with a hedge.
    "a garden hedged with yew"
    • enclose something.
      "the cathedral is closely hedged in by other buildings"
  2. 2.
    limit or qualify (something) by conditions or exceptions.
    "theyhedgedtheir storyaboutwith provisos"
    • avoid making a definite statement or commitment.
      "he hedged at every new question"
  3. 3.
    protect oneself against loss on (a bet or investment) by making balancing or compensating transactions.
    "the company hedged its investment position on the futures market"
    synonyms:safeguard,protect,shield,guard,cushion,cover,insure,take out insurance,take out insurance cover
    "the company hedged its investment position on the futures market"
    antonyms:expose to risk

 
Hedging is meaningful only on different assets, we all agree.
It is forbidden for US forex brokers to do locking or "hedge" the same currency even if in different volumes. (Maybe it's due to a technical problem the us law found when they tried to block only the "Locking" as described by Keith, because blocking only same volume opposite orders will allow traders to bypass the law with different ways like open two 0.5 short order lots against 1 lot long order or if that is blocked too then 2 orders of 0.5 short against 1.01 long which are not eaual size but close enough and so on.. or even thought that there would be traders that will claim they just want to trade different strategies that happen to sum up to same volume on opposite directions and they do not practice hedging)

So might be that us law makers intentionally thrown the baby (a possibility to trade same currency on different strategies) with the bathwater (trying to block the locking as Keith and Alain describe) because of technical difficulty and/or the need to protect the novice traders even if it means loosing this legitimate option.

Alain, I know what you mean and in that sense you are right of course, the only true hedging that is used to limit risks is on different assets.
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