Ask Your Advocate: Forex Hedging Using Two Forex Brokers
23 Years ago | January 06, 2014 1/28/23, 12:00 AM
Question for Your Advocate:
I received these comments in response to Ask Your Advocate: Is Automated Arbitrage Possible?
You wrote something about 2 position with 2 forex brokers. You can win but you need self-control. For example, with the first broker you go long euro @1.3600 and on the other short at 1.3550. You close the first one at 1.3850 and re-short it again at 1.3790 and close it both at 1.3600. You have a 2 time profit but this you can use only in a range market. The other way you are under water and no way to escape.
Your Advocate Says:
The only difference between hedging and what you described is that you are using two different brokers for two trades that you have taken a loss but not booked it (i.e.1.3550 short vs. 1.3600 long) . What you describe is no different than hedging (i.e. two trades in the opposite direction (long vs. short) in the same amount in the same currency) to lock in a loss except than you are using two different brokers.
I think why retail traders like to hedge is because it makes them feel like they have positions in the market when in reality they have no position as a short negates a long in the same currency. It is like a psychological crutch more than a trading strategy. In the example you described, the sale at 1.3850 is like a new trade as is the sale at 1.3790. You do not need a hedge, especially between two brokers, to make those trades.
I suggest reading Why I Hate hedging to see my feelings on this subject.
Feel free to agree or disagree by sending me an email to jay@tradersadvocate.com
