Some will, some won’t. Once you start to trade in the foreign currency market you will realize that not every broker let’s you indulge in the act of “hedging.” For those who are not familiar with the term, “hedging” means to place a trade both in the buy and sell directions with the same currency pair and at the same time. While in some markets the act of hedging represents the attempt to offset risk in price fluctuation, but in the Forex market it’s viewed differently. Some brokers will go as far as to close your trade if placed in opposition to the already opened one.

So let’s assume you think that the U.S Dollar (USD is weak), but you’re concerned that the tensions in the Middle East may cause oil prices to rise. Since USD has shown to have strong ties to oil, you opt for selling the USD (long USD/YPY). However going on this belief that the USD is become weak, you hedge your position and buy oil. Henceforth, if the price of oil does climb raising the price of the USD, you will sustain losses on the “sell” the USD position, but the losses will be inconsequential because of the “buy” oil trade. Hedging is still entering the “risk” zone though it’s a way of minimizing such risk.

Knowing how to trade the Forex market entails understanding many important terms. Here are some of the ones you need to master: 

The balance in your trading account is known as your Equity. It generally includes the sum of monies you have vested in all open trades plus what’s in your account at the time.  

The sum of money reflected in your trading account for use as margin is commonly referred to as your Balance.

This amount changes as you exit a trade. It is not however, the accurate measure of your account, as it does not show what you have invested in open trades.  

It is crucial that you understand these terms to know whether you are able to “hedge.” Remember too, that when hedging or placing two trades in opposite directions, you are paying the spread (broker’s commission) twice.   

After learning what “hedging means,” you can assume that it’s not that beneficial but could be rather costly. 

In summary, “hedging” lets you double your exposure while doubling your costs. It’s perhaps a way for the brokers to capitalize on their gains. It can be however of benefit to traders during the times when economic news are about to be released. It’s at this time when traders like to place their positions to buy and sell the same currency at the same time in expectation of wider spreads and bigger profits. It’s always important that you familiarize yourself with the broker’s rules as they hold your money and they determine what you can or can’t do while trading in the foreign currency market. While they might allow you to indulge in “hedging” during a particular time, they might now allow you to exit said positions with profitability.

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