Hedging exposed
Posted: Fri Mar 12, 2010 2:05 pm
Hedging was never interesting to me, I just didnt see the advantage. Except now I think theres a practical way to use it.
Let me explain with this morning release of Employment rate on CAD.
In the first picture, we have an usual hedge. In blue you buy, and in red you sell at the same time.
Now when the news is out, and its start going down, you close your buy and you are now only selling. But at this moment, there is no difference between you than the next Joe who just opened is sell order... Except maybe, you saved a little on the spread.
Now in the second picture, you start trading earlier before the release. You buy when price is low, and sell when its high. Its really not that difficult because price will always do this before a big release.
Now the advantage here, beside entering on a low spread, is that once you close your hedge (either way) you will be protected from a pullback.
Let me explain with this morning release of Employment rate on CAD.
In the first picture, we have an usual hedge. In blue you buy, and in red you sell at the same time.
Now when the news is out, and its start going down, you close your buy and you are now only selling. But at this moment, there is no difference between you than the next Joe who just opened is sell order... Except maybe, you saved a little on the spread.
Now in the second picture, you start trading earlier before the release. You buy when price is low, and sell when its high. Its really not that difficult because price will always do this before a big release.
Now the advantage here, beside entering on a low spread, is that once you close your hedge (either way) you will be protected from a pullback.