Hedging is a method of trading that a lot of traders look into. When you hedge a trade you can protect your account from losses. There are two ways that most traders consider hedging their retail trades and they are through simple and complex hedging. The one problem you could have is whether Australian forex brokers allow you to open these hedge trades. The simple hedging trade is the one that most Australian forex brokers will have a problem with.
Australian Forex Brokers and Simple Hedging
Simple hedging is the hedging type that most Australian forex brokers will have a problem with. When you use this type of hedging you will be opening a buy and a sell position on a single currency pair. When the trades are still open you will not gain or lose any money. Once you determine the movement of the market you can close the trade that would bring losses. You should then only make a profit on the second trade.
The problem that you can have when using this hedging is that your forex broker does not allow it. There are a lot of broker that do not allow you to open a buy and sell position on a single currency pair. There are some ways that you can get around this, but they often lead to more hassle than the hedge could be worth.
The first solution is to have two trading accounts with your broker. When you place the hedge trade you will have to log out of the one account and into the other. The problem with this is that you could miss the currency prices and the hedge will not work. The second option is to use two different brokers. The problem with this is that you could be charged different spreads which may affect the hedge trade.
There are some Australian forex brokers that allow you to complete simple hedging. You would have to verify this with the broker before you open an account. You could also ask other traders if hedging is allowed with your broker.
Brokers and Complex Hedging
Complex hedging is something that most forex brokers will not actually have a problem with. The most common complex hedging that you can use is to hedge with different currency pairs. As you are using different currency pairs the forex broker will view this as two separate trades that are not related to each other.
When you use this kind of hedging you need to have two currency pairs that have a common currency. This means that you can use the USD/NZD and the USD/AUD pairs for your hedge. To use this hedging you will have to open trades with both of these currencies to limit the risks of your trading. There are a few problems that you may come across with this hedging.
The biggest problem is that the currency pairs may not move in the same way. The inclusion of a common currency does not always ensure that the price action is the same. If there is a movement is the second currency then the hedge trade will not work as it should.