Plus500

Plus500

While trading in different financial markets, one can adapt to diverse trading systems and methods.

Without a strategy or system, trading is like gambling and the loss of money is 100% sure, so it is definitely vital for a new trader to choose or even develop his/her own approach to markets. In other words, a trading strategy. Hedging, for example, is a rather useful system for every trader and is absolutely worth considering.

Firstly, how to define hedging? We can see it as an insurance against negative outcome. When we insure a house, we are hedging against theft and other disastrous events.

It must be stated that insuring (hedging) does not eliminate the possibility for an unexpected event to take place, nevertheless it willower the losses and make them up to a certain point.

The same logic is applicable in trading with different financial instruments as well. Although we do not, actually cannot buy insurance, we just take another position to hedge the first investment. In the forex market it would look like this