Hedging position is a practice of taking a position in one market to offset and balance risk adopted by assuming a same position in a contrary or opposing market or investment, also known as hedge.
Fix Profit Hedge and Fix Loss Hedge.
When a investor believes that the main movement of one product won’t change in a certain period, but there is a risk of volatile or rebound, and he doesn’t want to close the positions he is holding currently, he could take a position in a contrary to fix his profit, that means he also gives up the right to the benefits of a price increase.
When a investor believes that the product would undergo some decline, and he wants to avoid a price fluctuation, he could also take a position in a contrary of his original position to lock the risks and hedge of a price decrease.
The amount of margin hedging position takes varies from products. Specific could be referred from “rules” of specific currency pair. If hedging amount equals to half of the advance payment, then it will take half of the margin.
|each contract size||100000|
|advance payment currency||USD|
|profit and loss calculation mode||forex|
|Advance payment calculation mode||contracts for differences - magnification ratio|
|lock up the deposit||50000.00|
|advance payment percentage||100.0%|
|carry out||market price|
|GTC pattern||valid until cancelled|
Formax will charge overnight interest for hedging position from both sides.
To be simple, the result depends on your account net worth and the advance payment that has been taken. Market movements always bring price fluctuation and rises and falls of account net worth, which could result in a lower than 100% margin level and trigger forced liquidation.
1.Formax Stop-out Rules：
When advance payment (margin) ratio reaches 100%,Formax will start to liquidate from the order which has the greatest loss.Once the margin level is back above100%, forced liquidation will stop. In addition, when important data or major news comes, or at the beginning or closing of the market, price often fluctuates dramatically and lead to a great loss of your account, sometimes even negative balance.Advance payment ratio formula:
Advance payment ratio = net worth/ used advance payment x 100% (formula 1)
2.About “net worth”in formula 1
The widening of spread could incur the decrease of net worth, there is a direct correlation between these two. When net worth falls to the same amount as used margin, Formax will initiate stop out measures.
3.More about Hedging Position:
In formula 1, when net worth decreases and advance payment ratio drops below 100%. Forced liquidation will be triggered.
It’s quite common that your stop out point is not exactly 100%, sometimes may be lower because market moves sharply after some major news.
About losing account during hedging: one major difference between marketmarker platform and STP platform is that STP platform adopts floating spread but not fixed spread. Losing account won’t happen in fixed spread platform as hedging point is fixed so as net worth. But in floating spread platform, every parameter is changeable, so the price is unpredictable and clients could loss their accounts during hedging.
1.Formax assumes no responsibility for any losses during hedging because of market elements.
2.Formax will not compensate for losing account during hedging because of market elements.
3.Formax has recourse if negative balance occurs during hedging because of market elements.
In real forex market, price and spread are both unpredictable, therefore we could not foreknow the critical time point when hedging.
If you want to practice hedging to offset risks, please take our suggestions:
1.Please hedge full position! No more or no less, even 0.01 lot, or it will be partial hedging, and take the most margin. In this situation, if market moves against your position, loss account will likely occur.
2.Make sure your have sufficient margin. If not, please make deposit. Only when you have sufficient margin to withstand the change of spread and net worth, could losing account be avoided.
Spread often enlarges when non-farm data or other major news comes. For clients who would like to hedge to offset risks, our warning is: please make sure you have sufficient margin to withstand the widening of spread, or you will loss account when net worth becomes less than used margin. Stop-out point maybe not exactly at 100%, sometimes may below because of dramatic market movement.
Please be noticed that stop profit and stop loss order during hedging may be clinched dis-symmetrically because of spread change.