Hedging (Hedging) means that we opened two opposite positions, so even if prices go up or down the value remains the same floating
Hedging, or locking the term was taken because when we use this technique we locked position so that the value gains and losses are always moving in tandem.
Logically, this hedging is not allowed because it means we play with ourselves. try to imagine at the same time you do buy 1 lot position in pair GBP / USD and 1 lot sell position in the pair GBP / USD. this means your profit in one position is your loss in another position. The partners of the study does not allow foreign exchange hedging. if you do buy 1 lot of position on the pair GBP / USD and then sell 1 lot position in the pair GBP / USD, then this means that you close your own positions.
Cross Hedging means we opened two opposing positions on the currency pair will be different but still closely allied. The purpose here is to cluster the movement trend of the currency pairs tend to be the same as: GBP / USD with EUR / USD; AUD / USD to NZD / USD.
Case Example
Mr.x predict the price of GBP / USD will go up so he opened the position Buy the hope prices will rise.
Oops, it turns out down the price .......
Mr. X re-analyzed and the conclusion: USD was strengthened but weakened back (Price GBP / USD is going down but will rise again)
He decided to .......
1. Hold positions Buy GBP / USDnya (not closed)
2. Opening a new position Sell EUR / USD (in order to benefit as EUR / USD falls)
Well see what happens
For example he bought 1 lot of GBP / USD at 1.9930 price and its current price of 1.9927, so the 3-point loss (1.9927 - 1.9930)
Then at that moment he opened positions Sell 1 lot of EUR / USD at 1.5888 price.
Now consider if the price of GBP / USD moves to 1.9925 and the price of EUR / USD move to 1.5900
1. Position Buy GBP / USD: 1.9925 - 1.9930 = -5 points (loss)
2. Position Sell EUR / USD: 1.5900 - 1.5888 = 2 points (profits)
3. Profit Loss TOTAL: -5 + 2 =-3point
What if the price of GBP / USD moves to 1.9934 and the price of EUR / USD move to 1.5881
1. Position Buy GBP / USD: 1.9934 - 1.9930 = 4 points (profits)
2. Position Sell EUR / USD: 1.5881 - 1.5888 = -7 points (loss)
3. Profit and Loss TOTAL: 4 + (-7) =-3point
The conclusion: because the GBP / USD and EUR / USD tends to equal, then the total income will also tend to be at -3 points
We continue our story back then the price never EUR / USD moves to 1.5880 then Mr. X immediately closed positions Sell EUR / USDnya which opened with the price of 1.5888 so that he profits 8 points
And after a while
In accordance with a predicted Mr. X price of GBP / USD back up to 1.9936, then he closed the Buynya position opened at 1.9930 price so that he profits 6 points.
Tips for you:
Weaknesses Cross hedging:
Hedging, or locking the term was taken because when we use this technique we locked position so that the value gains and losses are always moving in tandem.
Logically, this hedging is not allowed because it means we play with ourselves. try to imagine at the same time you do buy 1 lot position in pair GBP / USD and 1 lot sell position in the pair GBP / USD. this means your profit in one position is your loss in another position. The partners of the study does not allow foreign exchange hedging. if you do buy 1 lot of position on the pair GBP / USD and then sell 1 lot position in the pair GBP / USD, then this means that you close your own positions.
Cross Hedging means we opened two opposing positions on the currency pair will be different but still closely allied. The purpose here is to cluster the movement trend of the currency pairs tend to be the same as: GBP / USD with EUR / USD; AUD / USD to NZD / USD.
Case Example
Mr.x predict the price of GBP / USD will go up so he opened the position Buy the hope prices will rise.
Oops, it turns out down the price .......
Mr. X re-analyzed and the conclusion: USD was strengthened but weakened back (Price GBP / USD is going down but will rise again)
He decided to .......
1. Hold positions Buy GBP / USDnya (not closed)
2. Opening a new position Sell EUR / USD (in order to benefit as EUR / USD falls)
Well see what happens
For example he bought 1 lot of GBP / USD at 1.9930 price and its current price of 1.9927, so the 3-point loss (1.9927 - 1.9930)
Then at that moment he opened positions Sell 1 lot of EUR / USD at 1.5888 price.
Now consider if the price of GBP / USD moves to 1.9925 and the price of EUR / USD move to 1.5900
1. Position Buy GBP / USD: 1.9925 - 1.9930 = -5 points (loss)
2. Position Sell EUR / USD: 1.5900 - 1.5888 = 2 points (profits)
3. Profit Loss TOTAL: -5 + 2 =-3point
What if the price of GBP / USD moves to 1.9934 and the price of EUR / USD move to 1.5881
1. Position Buy GBP / USD: 1.9934 - 1.9930 = 4 points (profits)
2. Position Sell EUR / USD: 1.5881 - 1.5888 = -7 points (loss)
3. Profit and Loss TOTAL: 4 + (-7) =-3point
The conclusion: because the GBP / USD and EUR / USD tends to equal, then the total income will also tend to be at -3 points
We continue our story back then the price never EUR / USD moves to 1.5880 then Mr. X immediately closed positions Sell EUR / USDnya which opened with the price of 1.5888 so that he profits 8 points
And after a while
In accordance with a predicted Mr. X price of GBP / USD back up to 1.9936, then he closed the Buynya position opened at 1.9930 price so that he profits 6 points.
Tips for you:
- Cross hedging can be used to analyze and generate profit as an example the case of the above
- The movement of the currency pair in the same cluster is not always the same direction. Sometimes GBP / USD moves up, but EUR / USD moved down. This may happen if the currency has strengthened GBP and EUR has decreased.
- The movement of the currency pair in the same cluster are not always identical. This means that if the GPB / USD gained 5 points, does not mean that the EUR / USD also be strengthened as much as 5 points.
Weaknesses Cross hedging:
- Allied currency is not always the same direction.
- Even if the direction is not identical. Here's an example, suppose today GBP / USD rose by 100 points, EUR / USD also strengthened, but only 50 points. This means that both are equally strong but not identical (100 points).
