Hedging is a transaction implemented to protect an existing or anticipated position from an unwanted move in exchange rates.
Hedging is used by a broad range of market participants, including investors, traders and businesses.
When hedging is properly used, an individual who is long on a trade can be protected from downside risk. Alternatively, a trader or investor who is short on a trade can be protected against upside risk when hedging is properly used.
Let's take look at the recent
BTC
upside move from 24900 on 11 Sep '23. In the attached image, #BTC swing move started at the first "LONG" Label. This trader would hedge (i.e. SHORT) at the level that's labeled "HEDGE" because the upside move is not over yet.
The trader would close the short position and open a long position at the second "LONG" label, while still holding the initial long position from 24900. The trader should now have two long positions open. Again, this trader would hedge at the second "HEDGE" label and close the short position and open a long position at the third "LONG" label while still holding the initial long positions, making the trader's open positions to be three. The trader is expected to continue to hedge until his/her final target is reached or the swing move is trauncated.
Hedging is used by a broad range of market participants, including investors, traders and businesses.
When hedging is properly used, an individual who is long on a trade can be protected from downside risk. Alternatively, a trader or investor who is short on a trade can be protected against upside risk when hedging is properly used.
Let's take look at the recent
BTC
upside move from 24900 on 11 Sep '23. In the attached image, #BTC swing move started at the first "LONG" Label. This trader would hedge (i.e. SHORT) at the level that's labeled "HEDGE" because the upside move is not over yet. The trader would close the short position and open a long position at the second "LONG" label, while still holding the initial long position from 24900. The trader should now have two long positions open. Again, this trader would hedge at the second "HEDGE" label and close the short position and open a long position at the third "LONG" label while still holding the initial long positions, making the trader's open positions to be three. The trader is expected to continue to hedge until his/her final target is reached or the swing move is trauncated.