The term hedging seems to have some mystery around it – everyone is talking about it but no one explains what it is.  The first thing you have to know is that even as a novice trader, you can understand the hedging and the techniques most traders use to create good money management.

What Is Hedging?

Hedging is a great way to protect yourself from major losses. In a way you can address hedging as insurance. When you buy a car, you also purchase insurance in case of accidence, theft, unforeseen disasters. Hedging works the same way in trading – it reduces the impact of various unexpected risks involved in forex.

How to Hedge?

Traders combine several positions, which help to limit the risk. The trick is to take opposing positions in separate markets. When you think about it, you might argue that this technique will actually limit the profits, however any insurance costs and it works when you are in trouble! So does hedging when the market moves in unpredictable way and you are in a bad trade.

1. Use the Interest

One of the techniques involves going long with a currency pair that pays lots of interest and also go short with the same pair with another broker that doesn't charge interest.

The challenge here is to find a broker that doesn't charge interest. This is indeed not a simple task. And to make things worse, you will be paying the spread twice on both buy and sell positions.

If your goal is to consistently make profits in forex trading, you need to have a trading plan which allows you to grab market opportunities by the horns. Forex market has a dynamic and a volatile atmosphere and understanding the price movement is crucial for successful trading.

Pure price action trading is one of the preferred strategies among novice traders. Let's take a look at this simple way to make few pips without much fuzz.