How to Hedge when Trading Forex

Throughout my career as a Forex trader I have come across the word 'hedge' or 'hedging' numerous times. Quite I often I hear traders ask 'does broker XYZ allow hedging?' These traders are usually referring to if a broker allows a trading account to hold both long and short positions of the same asset at the same time. I have also heard the term used quite differently. In this post I will give some insight into hedging and explain how I hedge my trades when trading Forex and CFDs.

What is hedging?

Traditionally, hedging was widely used by longer term stock and commodity traders and investors and was used to reduce risk and potential loss. If a trader or investor purchased a particular stock or commodity with the plan to hold for several weeks, months or years, they could reduce the risk of the position by hedging the position. Hedging would allow profit to be made if the purchased asset did not go in the desired direction, these profits were usually made through purchasing options or short selling a particular stock and would go against the loss of the original long asset purchase. For example, a trader may go long Barclays stock, he or she could then hedge the trade by purchasing put options for Barclays, short selling highly correlated shares (other banking shares etc.) or a mixture of both. If Barclays shares plummet while owning the shares, any major loss could be covered by the held options or short sold stock.

Do you need to Hedge when Day and Swing Trading Forex?

You may not need to hedge all positions when day and swing trading Forex. Most traders won't hedge at all, but you should! If your broker offers guaranteed stops then this is your best form of 'hedge'. Using a guaranteed stop can reduce and limit risk. When I have access to guaranteed stops there is no need to hedge my positions, but guaranteed stops are not always offered or not always available.

How I Hedge my Forex Trades?

When guaranteed stops are not an option I will hedge my trades for 2 reasons...

1. There will be major influential news announced while I hold the position

I have seen price jump 30, 40, 50 and even 100 pips at a time. With the whole SNB CHF incident, price moved considerably more than this. If price moves against your position with such momentum, do not expect your tight stop loss to trigger at your desired price. Hedging trades when such price movements are expected is very wise. My video below will show you how I do this.

2. I will likely hold the position over the weekend close

Just as price can move 100's of pips in a split second when economic news is announced, the Forex markets can also gap or re-open by 100's of pips at a time. You will need to protect your trading account against such movements. Learn how I hedge my Forex trades for market gaps in my video below.

© 2015-2021 love-the-pips

  • Grey YouTube Icon
  • Grey Instagram Icon
  • Grey Facebook Icon
  • Grey LinkedIn Icon
  • Grey Twitter Icon



*There is a very high degree of risk involved in trading. Past results are not indicative of future returns. Samuel Morton, and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for Forex trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of Samuel Morton and may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. Trading Forex, Options on Forex, and any retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time. Samuel Morton and is not an investment advisory service, is not an investment adviser, and does not provide personalised financial advice or act as a financial adviser. exists for educational purposes only, and the materials and information continued herein are for general informational purposes only. None of the information provided in the website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, recommendation or sponsorship of any company, security, or fund. The information on the website should not be relied upon for purposes of transacting securities or other investments. You hereby understand and agree that Samuel Morton and does not offer or provide tax, legal or investment advice and that you are responsible for consulting tax, legal, or financial professionals before acting on any information provided herein.

*All services and products on this website (and all services and products offered by SM Web Capital Ltd) are for educational purposes only. SM Web Capital Ltd and love-the-pips is not an investment service and does not offer financial advice. No client funds are managed. There is no need for SM Web Capital Ltd or love-the-pips to be regulated by the FCA. 

*All trading products and services are non-refundable.  It is hardly fair to process refunds just because you change your mind after receiving materials and the education. Just as and iTunes, we do not offer refunds for digital products, there are NO refunds on any digital products offered on this site. Past results are not a reflection of future gains.  Our Mentor Program is non-refundable upon the start of the first training session. Our time is priced at £250.00 per hour, the mentor program offers 2 paid hours with the remaining program free of charge. Our Advanced Price Action Course is non-refundable once the purchaser has logged-in. is dedicated to learning profitable Forex price action trading