What is Hedging?

“Hedging your bets” is a common term in binary options, used or heard by most of us. We use it in everyday life, even when we aren’t talking about binary option trading. When you observe someone equivocating on any point, and then trying to cover his bases, that person is hedging his own bets. And that’s what hedging exactly means in trading. This means you’re trying to cover your bases and guard yourself against losses in the best possible way. When you hedge, generally you’re trying to find out a way to earn profit regardless of what the market is doing, even though it ends up in doing the opposite of what it was expected to do.

Great Hedging Ideas for The Binary Options Traders

Nowadays, there are levels of hedging; along with them comes different tactics that you can utilize to hedge in diverse kinds of trading. For example of degrees, consider hedging your entries vs. hedging your trades actually. Double touch option having a trigger point which is set below and above the present price will be an instance of hedge where you’re giving yourself an opportunity to win whether market goes upward or downward, but you’re in one trade only. If you would have been trading Forex, anticipating a breakout in any direction, you could have set an entry below or above the current rate level, and simply got rid of the surplus entry when the right one triggers. In this situation also, you are in an individual trade, but you hedged on entry still.

Another method you can hedge easily is by being in two different trades at a time. If you’re trading Forex, you for example can open two different positions from single entry point, both buy and sell. If those two positions are of same size, when both are open, then you’ve a profit of zero. This might sound worthless, but think that you could do a better trade in direction you’ve more confidence, and a small trade the opposite direction. As the confidence grows, you may close the small position. However, if things go bad and both the positions are open still, the smaller profit position would return some money at least.

Overall, with binary option, you can’t open two contradictory positions on one asset for one trade. You need to pick up a direction, Low or High. However, you can hedge by opening second position in opposite direction on any related asset that you expect to perform less or more in the same way like the first one.

A few traders may also choose to trade both Forex and binary option. This offers you with yet another hedging opportunity. Say for example you opt for “High” on binary options for a specific currency pair; however, you wish to hedge and just open a small bearish position. And if you’re a Forex trader too, you can open a small bearish position on Forex platform simultaneously when you enter in your bullish binary option trade. This offers you a little protection if your binary option trades fail.