It is certain that every forex trader wants to get profit without bearing losses. But traders need to admit the fact that risks are inevitable sometimes due to fluctuations of forex market. What traders need to do is finding out way outs to avoid risks. So what are effective forex strategies to help traders get profit while reduce risks? The answer is hedging. Hedging is one of forex strategies used to offset or reduce risks resulted from market fluctuations in forex trading.
A forex trader buys a currency pair and expects that it will rise in price; if the price really meets his expectation and goes up, he will get profits; but there is possibility that the price will move to the opposite direction. Thus in order to prevent from potential risks, traders may use the forex strategy-hedging to reduce losses.
Hedging is a forex strategy used widely and it really helps in offsetting losses; but how to use this forex strategy-hedging in forex trading? Various ways are used by forex traders to hedge against their losses, among which, the most commonly used hedging methods are forex futures trading and forex options trading?
Forex futures are traded by making futures contract to exchange one currency for another at a specified date in the future. Exchange rates and trading amount are also fixed on the purchase date. Forex futures trading is an effective forex strategy in reducing risks brought by market fluctuation because exchange rates are predetermined in futures contracts.
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