Hedging is a trading strategy to "limit" or "protect" trader funds from fluctuations in unfavorable currency exchange rates. Hedging provides an opportunity for traders to protect themselves from possible losses even though he is conducting a transaction. The trick is to minimize the risk of loss when currency exchange rate movements do not allow traders to profit.
Usually, the position of a losing trader will be closed automatically when the price reaches the Stop Loss level or a Margin Call occurs, or if the trader does his own Cut Loss. In all three scenarios, the trader will surely incur losses that are not small. However, if the market participant uses a Hedging strategy, it is possible to minimize the amount of the loss, or even be able to break even. Not only that. Hedging can also help market participants in planning the next trading position.
Hedging is primarily intended to limit the risk of trading on the financial market. However, many forex traders use it as a daily trading strategy. This is because forex trades pairs of currencies, so that the decline or strengthening of the exchange rate of a currency is always related to the decline or strengthening of the exchange rates of other currencies.
Linkback: https://www.forex.zone/forex-education/29/trading-with-hedging/2306/
