It would be great to be able to hedge my positions on C2, Say buy and sell Eur/Usd at the same time. This will increase profit pottential for my system while decrease losses.
One way you could do this is to buy or sell GBP/USD in the opposite direction. However from my conversations with another trader, you should actually increase the number of contracts that you hold in EUR/USD vs GBP/USD.
Obviously, this means long term you are either buying or selling the EUR/GBP, but if you are looking to hedge against short term large movements up or down in the USD, this strategy can work for you. I have not used it in a long time since my subscribers rather I just use stop and profit targets.
"Say buy and sell Eur/Usd at the same time."
That is the same as being flat and you don’t pay commissions and slippage to do it. Many argue otherwise, but that is because they are still convinced the Emperor was wearing clothes…
Thank you for your suggestion.
This doesnt work for me, as Eur/Usd sometimes would trade the opposite of Gbp/Usd for an extended period of time.
Hedging in the same currency is different, as you may reach a strong support on your sell positions and can still hedge your position to capture profits, instead of closing then waiting for that support to break, which might not happen.
"Hedging in the same currency is different, as you may reach a strong support on your sell positions and can still hedge your position to capture profits, instead of closing then waiting for that support to break, which might not happen."
hedging in the same currency is the same. using money management is called profit targets/stop losses to get out, or reducing your open positions to capture gains.
It may sound like hedging, but being long/short in the same currency is no different than this, mathematically.
Mathematically, Maybe
Reality, Diffenately not.
Try actually doing what you just explained, and I assure you, you will blow up your account.
If you want to hedge the Dollar, in Eur/Usd and gbp/Usd, you will still be betting on Eur and Gbp. This means you will still lose money eventhough your hedging.
When Buying and selling Eur/Usd at the same time… you will never lose money no matter what happens.
What he is saying is that the following two scenarios are mathematically identical:
1) "Forex Hedging"
Buy long 20 EURUSD
… Go short 4 EURUSD
… Close short position by buying back 4 EURUSD
Close long position by selling 20 EURUSD
2) How to do this on C2:
Buy To Open 20 EURUSD
Sell To Close 4 EURUSD
Buy To Open 4 EURUSD
Sell To Close 20 EURUSD
The two are absolutely identical. One does not have any additional risk or problem over the other.
Precisely, MK
Being long and short the same thing is exactly identical to being flat.
I think you guys should search about hedging first.
How is "Being long and short the same thing is exactly identical to being flat"??
Hedging will allow you to capture a market retrace at strong resistance/support levels with out risking a penny.
Once price retraces you can move stoploss to breakeven on both sells and buys… then wait which ever gets hit, If your stoploss gets hit on your sells at breakeven, then you will ride a long trade with a newly formed trend.
there are many ways to hedge and secure your profite. And what you guys are saying here only demonstrates a lack of knowledge in hedging.
Traders like me really need to use hedging. Please search about it, and look into it.
The two scenarios I outlined above are mathematically equivalent, so there’s not much more that can be added to the conversation.
The problem is, you and are confused about its use. Being long and short the same thing is NOT a hedge. It is being flat. Hedging involved related instruments, not identical.
FLAT. If you think it is not the same, you completely misunderstand hedging.
Examples of a real hedge, are when Southwest obtains futures contracts on energy products, to lock in the price of fuel so they are protected against future price rises or fluctuations. Or when Nestle obtains future contracts, to lock in the price of sugar and cocoa. Or when someone in the US market might short the US dollar, so they can own and benefit from the movement of the stocks and be not be affected by the movement of the Dollar.
HEDGE definitions:
investorwords.com: An investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position in a related security, such as an option or a short sale.
investopedia.com: Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract. An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations.
wikipedia.com: Typically, a hedger might invest in a security that he believes is under-priced relative to its “fair value” (for example a mortgage loan that he is then making), and combine this with a short sale of a related security or securities. Thus the hedger is indifferent to the movements of the market as a whole, and is interested only in the performance of the ‘under-priced’ security relative to the hedge.
Someone who has a shop, for example, expects to face natural risks such as the risk of competition, of poor or unpopular products, and so on. The risk of the shopkeeper’s inventory being destroyed by fire is unwanted, however, and can be hedged via a fire insurance contract.
Definition of Perfect Hedge from Dictionary.com
"A hedge that exactly offsets any gains or losses from an existing investment position. An example of a perfect hedge is the short sale of an owned security in order to lock in an existing profit and transfer it to a subsequent tax year."
No, After 7 years of trading experience… I am sure that hedging in the spot forex can be deffined as selling and buying the same instrument at the same time.
Anyways, you can call it what ever you want.
But could it possibly be added on C2??
Your example is to transfer something for tax purposes. It has nothing to do with thinking that being long and short the exact same thing is different than being flat. Let us try some widely accepted financial sites:
Definition of Perfect hedge from InvestorWords.com
A hedge which completely eliminates the risk of another investment.
Definition of Perfect hedge from Investopedia.com
A position undertaken by an investor that would eliminate the risk of an existing position, or a position that eliminates all market risk from a portfolio. In order to be a perfect hedge, a position would need to have a 100% inverse correlation to the initial position. As such, the perfect hedge is rarely found.
Hedging is for a PURPOSE. It is about eliminating risk. Such as to hedge your fuel purchases. Or to hedge your commodity purchases. Or to hedge your holdings from currency fluctuations. Or for tax purposes. Being long and short the same instrument is not clever. It just increases your commission and slippage costs, when it is identical to just being FLAT
Here is an experiment for you
Go to 100 brokers, and see how many of them let you be LONG and SHORT the exact same instrument (like electronic June emini S&P - @ESM8) in ONE account. They will likely say, “but that’s the same as being flat!” (which by the way, is what happen if you try that in the average futures account!) If you find at least 5% of the brokers think differently, get their names and numbers, and provide it to us…
Gee, almost none?
That is why Matthew need not set up this functionality.
I agree with MK, with some remarks. Being long and short at the same time with the same quantity is the same as being flat. If people told you differently, they were probably lying or just repeating a crowd opinion. But perhaps there are some differences apart from the pure financial aspects:
1. The problem might be psychological, in that you perceive two open but opposite trades differently than a flat position. This does not matter for an automated system, but I can imagine that it poses a problem for discretionary traders when the information is presented in a way that is unusual to them. For example, suppose that one is used to place the stop 50 pips away from the opening price. Consider the hedging example that MK gave, with some prices added to them:
open long 4 EURUSD at 1.5836, add stop to sell at 1.5786
…open short 4 EURUSD 1.5800, stop to buy at 1.5850
…close short 4 EURUSD 1.5790
close long 4 EURUSD 1.5850
The equivalent orders in C2 would be
open long 4 EURUSD 1.5836, stop 1.5786
close long 4 EURUSD 1.5800, add stop to buy at 1.5850
open long 4 EURUSD 1.5790, add stop to sell at 1.5786
close long 4 EURUSD 1.5850
The two stops in boldface are counterintuitive for a trader who is used to think in simultaneous long and short positions. The first one is counterintuitive because one has to add a stop when closing a position, which is not what the trader was used to. The second one is counterintuitive because one has to place the stop relative to the opening price of a previous trade instead of the current trade.
2. The statistics will be different. In the first description (the intended hedge), both trades are winning. In the second description, the first trade is losing. The intratrade drawdowns will be different too. Here, my opinion is that we should accept the current analysis of C2, and consider the trade closed when the total portfolio is actually flat. Otherwise we can throw away all C2 statistics because they would depend on the subjective perception of the vendor. A vendor can always say "this is not closing a losing trade, but opening a new short position".
In summary, I can imagine that some traders would benefit from a user interface where simultaneous short and long positions are allowed, but in the statistics the definition of a "trade" should definitely stay as it is. This hybrid solution, however, has the disadvantage that new users will complain "I opened a long and a short trade, but now it is showing in the statistics as two different long trades, how is that possible?". Next, we will have the whole discussion over again, because this new trader will surely not believe either that long + short = flat.
Right, Jules. I should further add that I understand that, in the world of forex traders, it is very common to use the term “hedging” to describe a situation where you go long or short the same instrument simultaneously. I’m not criticizing this, or saying that the terminology is incorrect, or that the intellectual construct is stupid. Rather, I’m pointing out that while you can’t do exactly what you want on C2, you can construct a perfectly equivalent position (from a mathematical perspective).
And to be honest, for all sorts of internal software and programming reasons, it’s unlikely C2 will be adding the ability to hold both long and short positions of the same instrument simultaneously. But you certainly can construct identical trades through the method described above – that is, by decreasing or increasing the position you hold.
By virtually every definition, and Ross has provided plenty for your reference, hedging is not buying and selling the same instrument. It is about reducing, or attempting to eliminate, risk with a related instrument.
Jules hit the nail on the head talking about psychology. You obviously have some kind of internal need to trade this way which may be worth investigating with some self-work.
A few years ago I had some senior colleagues on the prop desk at an investment bank who used to do what you’re suggesting. They would go long S&P’s in one account and short in another, and when they felt the market was stretched in one direction they would take one half off and ride the other, at the end of each day they would put the other position on again so they were always going home flat and although we all tried to convince them it was the same as having no position at all they weren’t having it, I think psychologically it was their way of avoiding regret of closing out a position and then having to re-enter when a sizeable move has occurred, in doing it their way one of the accounts was always doing well. It meant they were always in the market without having to be right about the direction, so I can see why people do it but to call it hedging is a misnomer, it’s really just a psychological crutch.
Ross - you missed my point entirely. First off it isn’t “my example”. The point being made is that others consider to be a hedge what you deny. A perfect hedge implies that no money can be lost. The only way to guarantee this is to take an equal opposite position and yes mathematically it is the same thing as closing your position.
The fact of the matter is that if you ask ten people what a hedge is you will get ten different answers. It is one opinion against another. There is no right or wrong. Simply annoyance by someone who thinks he is right all the time.
Brad thinks that use of a similar FOREX instrument is a “hedge”. I don’t know how long Brad has been at C2 but Ross surely you remember times long ago when things were a lot more exciting - think back to a system called Hawk FX and the system vendor who thought that taking an opposite position in a similar FOREX instrument was a hedge. I’m sure you remember the results - some clients actually challenged the fact that he claimed he was using a hedge (in the ensuing lawsuits).
Steve
"Ross - you missed my point entirely. First off it isn’t “my example”. "
“Your example” = "the example in your post"
The point being made is that others consider to be a hedge what you deny.
No one who is a serious, profitable trader considers this as hedging. That is why a person requesting this concept will get strange looks from any serious broker, investment bank, hedge fund, longterm trader or other trading concern. It is a sign of a person who needs to educate themselves about what matters. In fact, if a new custromer requests this, a trading firm will attempt to educate them that this is the same as being flat.
It has nothing to do with trying to be correct. Harping on it does not make a naive statement any more correct.
I am having similar difficulty with Gilbert aka “Let me open up 6 more test systems, one of these has GOT to be a winner…”. His responses are not much different than that of a deer in the headlights, and have the depth of a 3 year old at a neurosurgeon’s convention.
A trading site/forum is supposed to be about learning how to trade successfully. Instead of getting it, N B insists on weaving cluless functionality that no broker would seriously consider. That says something about N B’s level of trading acumen… No malintent meant towards him/her, but if they don’t learn fast, they will join the 95% heap rapidly.
but Ross surely you remember times long ago when things were a lot more exciting - think back to a system called Hawk FX and the system vendor…
This place has become a downright yawner at times.
