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 2 positions requires margin for only one position
Hedging is an advanced feature of FXCM Micro’s Trading Platform. Hedging is enabled on all live and demo FXCM Micro accounts. To see hedging in action, watch this video.
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 micro lots of EUR/USD, but since this is a hedged trade, you need only to set aside $2.50 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?
Hedging is a default on FXCM Micro accounts. It cannot be disabled.
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.
*The above educational video(s) are for FXCM Micro, FXCM Mini and Standard accounts. However, execution-specific references apply to FXCM Mini and Standard accounts only. Execution details differ for FXCM Micro as it acts as counterparty to all transactions.
