Hedge order: The process of placing an order based on an existing order of the same currency pair is called hedging. On platforms where hedging is not allowed, these two orders will cancel each other out.
Objective: To use hedging instead of placing stop loss. The main purpose of hedging is to provide a kind of security, not profit. There may be a profit or a small loss, which is inevitable even for the most experienced traders. But profit should not be the purpose of hedging.
Thinking: Stop loss, we lose money. Hedging can minimize our losses and even generate a little profit. The purpose of the parent order is to make a profit, and the hedging order ensures that we can land smoothly when we do fall off the rope.
Bonus: the hedging will no longer occupy the margin (that is, make 2 lots and charge 1 lot margin).
Simple and complex: A simple hedging order replaces the stop loss of an existing order. We can set a stop loss on the hedging order, just like any other order, or we can set a second hedging instead of a stop loss, and so on.
When a hedging order is placed at a position slightly away from the parent order (that is, where you usually put a stop loss), it is a buy/sell stop loss (buy/sell stop loss) order in terms of order type (some platforms may need to specify hedging) and must be executed in the same account as the parent order.
Flexibility: The hedging order does not need the same buying and selling quantity as its parent order. For example, if the parent order 1.200 buys 0 lots of Euros/USD 1, the hedger can sell 0.5 lots of Euros/USD/1965.
Note: Be careful when closing hedging orders that generate book profits (especially when the overall profit and loss is negative). If you close the position, you should also set up another hedging order (the usual stop loss distance of the closed hedging order).
There are always some mysteries surrounding the concept of hedging. Treat any hedging transaction as an independent transaction and deal with it separately. All hedging offers additional advantages-greater flexibility and security.
Hedging on any platform: For platforms that do not provide hedging function, just open a separate account and place a hedging instruction. However, this order also requires a deposit, which should be noted.
Rule # 1: Test in a simulated account first, and then put it into actual operation after proficiency.
Rule 2: Put your hedging order where you usually put your stop loss. (The ideal result is that the hedging transaction is not triggered, so special attention is not required. )
Rule #3: The purpose of hedging transaction is to protect the parent document, not to make more profits from it. If hedging can generate profits, that's fine, but its main purpose is to avoid any major losses.
Example:
The parent order buys Euro 1.3 100.
Stop loss of hedging order € 1.3050
If the hedging transaction is triggered and the euro continues to fall, a hedging order is issued. Don't close the hedging transaction with book profit, and set a stop loss of 1.3049.
Sub-orders buy Euro 1.30 10.