If you have ever participated in the financial market, the term ICMarkets hedging will probably not be unfamiliar. But do traders fully understand this risk management trading strategy? Learn Forex Trading will help traders interested in this strategy understand it in detail. From there, you can avoid mistakes when participating in forex transactions on Web ICMarkets
What is the term ICMarkets hedging?
If you are a new trader or do not know about hedging, you will need to learn the content of this article. This is an important method to prevent risk for a trader’s trading portfolio. Faced with market fluctuations, this method will help protect assets better.
Hedging means an insurance method, limiting risks when trading on ICMarkets. The financial market is always famous for its sudden changes and high risks. Applying the hedging method will help traders maintain the best position.
When using the hedging method, you buy and sell currency pairs at the same time. Even if the price goes against Forex Signals, the trader’s trading position is still protected. When there is a suitable opportunity, the trade will close and wait for a return to at least breakeven.
Common Forex Hedging Strategies on ICMarkets
In the Forex market in general and the Forex ICMarkets platform in particular, the Hedging strategy is widely applied. ICMarkets hedging is very reputable, with no fraud, and no account locking. There are usually 3 main strategies used at this forex exchange:
Perfect prevention in ICMarkets Forex trading
The perfect hedging strategy on ICMarkets helps protect positions from major fluctuations in a currency pair. This is done by opening Long and Short positions on the same currency pair with the same volume and price. Traders will have the opportunity to fully defend and eliminate risks perfectly.
For example: You have a EUR/USD pair that you want to trade at a price of X$ in a Short position. Buy with a volume of 10 Lots and expect the exchange rate to drop to Y$. However, the price does not fall to your expectations, so you open a Long position with the same price Y$ and volume of 10 Lots.
The ICMarkets hedging Perfect strategy will help balance your losses. Of course, then you will lose transaction fees and the initially expected perfect profit.
Imperfect Hedging Forex Strategy
If you use this strategy the possibility of protecting the position is only partial and with a forex options contract. Imperfect price hedging only eliminates certain risks. But the profit margin was achieved even though it was not as good as initially expected.
For example, a trader establishes a Long position trade on the Euro price at a level above X which is Z$. But if the price drops below $X, they will buy your options contract right away. If the price continuously increases above Z$, the trader must pay the option contract fee. There is no need to exercise the sell option.
Hedging strategy based on countermovement
Using a counter-volatility strategy usually requires at least two currency pairs. The currency pair must have a strong inversion and opposition to implement this strategy.
For example, traders trading around the USD will have main groups of USD/CHF, EUR/USD, USD/CAD, AUD/USD, NZD/USD, USD/JPY, and GBP/USD. But there are EUR/USD and USD/CHF pairs that always fluctuate strongly in opposite directions. If this pair decreases, the other pair will increase in price, so you can choose both to trade.
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What are the disadvantages of hedging on ICMarkets?
Although it is a good risk management method for traders who trade confidently in the market. However, the Hedging strategy is not without disadvantages. If you want to use it, you need to know the inherent weaknesses of this method.
Using Hedging on ICMarkets can still result in capital loss
Any risk prevention strategy is still just to protect your capital flow. Traders still have to pay fees when executing orders, so if you break even, you lose the fee. Consider using ICMarkets hedging because the goal of hedging is not to make a profit.
A portfolio protection strategy isn’t perfect either, as you can still get it wrong. If not achieved in reality, the losses could be many times greater than the original.
Lose more transaction fees on ICMarkets
When performing any Hedging operation as mentioned above, there are risks. Traders will pay a certain fee. That will be the amount of money you have to spend to open the contracts, creating the initial opposing position. However, if the risk does not occur, the cost of opening that order must be fully borne by you. If the market is not supportive, the fees are very worrying indeed.
Common mistakes with Hedging on ICMarkets
Although the ICMarkets hedging strategy is called risk hedging for traders. But if risk is not managed, it will be a disadvantage for all traders. Any contract or contract option fails when used. Investors will have to accept huge losses and no good intervention.
With Hedging creating opposing positions, the risk is higher because the difference between expectations and price trends is very difficult. In particular, the financial market always fluctuates unpredictably in just a few minutes.
Traders can better understand that insurance companies also face risks when selling insurance. When the company encounters problems, there will be no unit to guarantee their risks. The same goes for Hedging strategy and operations, it is its own risk.
What should you keep in mind with ICMarkets Hedging?
When using the risk management strategy mentioned above, it also has its problems. Therefore, when applying, traders must also be very careful. Experts have given recommendations for customers to best use this strategy.
Cost calculation
Hedging comes with a small price to pay: transaction costs. If a trader wants to open a contract or open an order, consider the cost-benefit ratio. If participating in a Hedging trade helps you manage a much larger portfolio than the cost, then the strategy is effective.
Strengthen your trading experience
Using ICMarkets hedging for risk management requires additional knowledge. Because the inverses of currency pairs in the financial market are not 100% correct. So there is still a probability that both orders are opposite to your guess. Then the risk will be doubled for you, how to handle it, can traders understand?
So use the demo account to learn from experience before joining the live account. In addition, you should not rely too much on this method for trading. Because the rate of your assets decreasing or remaining stagnant is higher than increasing if you apply hedging.
Pay attention to market fluctuations on the ICMarkets Forex exchange
If you want to use the hedging strategy well, you must pay attention to market fluctuations. Because the position of this strategy will often be opposing, if not observed. All measures to protect your capital will be unbeatable if both predictions go against you. There are even strong fluctuations that will cause you to be wrong in both opened orders.
Conclude
Hopefully, the Learn Forex Trading article has helped traders better understand Hedging. Applying the ICMarkets hedging strategy requires mastering important notes. Hope you will use Hedging appropriately to have success for yourself. Besides, you should also closely monitor the ICMarkets Holidays calendar to capture better investment opportunities.
>>>See more: What is ICMarkets? Is it a leading forex platform?
Frequently asked questions
The hedging strategy is a safe and highly effective trading method if you know how to apply it. Traders, please visit the FAQ section below to understand more about this strategy.
Can MetaTrader 4 Supreme Edition be used for hedging?
MetaTrader 4 Supreme Edition is a software that helps traders observe the market very well. When using Hedging Trading, MT4 is an extremely effective support software.
How should new traders hedge?
New traders who do not have much experience must use a demo account to trade Hedging. If you want to trade Hedging well, you need to practice a lot.
Are all brokers allowed to hedge?
ICMarkets hedging is one of the popular trading strategies in the financial markets. However, not all Brokers (exchanges) allow the use of Hedging. ICMarkets is a deployed unit that you can refer to.
