Today we are going to talk about what is Forex hedging, including brief overview of risk management techniques, alternative trading strategies and the steps a trader has to complete to turn from a novice into a pro.

Hedging is one of the most popular forex trading tactics. The essence of it is to reduce the dangers of investing in any instrument (or tangible asset) by investing in another. As practice has shown, this means that on the Forex market, a trader must be able to open balanced positions in several currencies at once, so that the possible losses from one position are almost completely compensated by the profit on the other.

The possibility of hedging through Forex trading has always aroused the interest of a wide variety of traders, both more experienced and just beginners. It is known that all sorts of hedging strategies are often practiced by many institutional Forex participants: • subjects of foreign economic activity; • investment funds; • financial companies; • banks.

In the world of trading, hedging refers to making multiple investments with inverse price-action relationships. If one investment weakens, another will strengthen at the same time, limiting the total negative impact that any single investment can have on a portfolio.

Many new traders have probably read or heard the term ‘hedging’ before, but in most cases it is gravely misunderstood. Hedging can be a good risk management tool, but if an account is not hedged properly it can have devastating effects. Hedging is a more advanced form of risk management and new traders should be very careful with it.