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Many CFD brokerages allow hedging. I.e. simultaneously opening a long and a short position on the same instrument. Because of that it is possible to apply hedging instead of stop losses.
I am curious, does anybody here uses hedging in trading? If so, do you mind sharing the details (in general terms, of course)?
Can you help answer these questions from other members on NexusFi?
I use both static and dynamic delta hedging for volatility trading in order to mitigate directional risk.
Hedging using CFDs is expensive as you (often) have a negative cost of carry. I don't see the real use case for (retail)traders using CFDs to hedge directional exposure for directional strategies.
The following 2 users say Thank You to Cogito ergo sum for this post:
Not exactly. Some traders use it instead of stops. For example, you take a long position. Instead of placing a stop you put a stop sell order 30 pips below your long entry. If it is hit you lock in a 30 pips loss, never mind how far the market goes against you. Another way to manage the trade.
This is certainly true, but the same is true of a stop order
In the futures world, if you are long and you want out, you put in a sell and your long position is reduced by the sell amount. If they're the same, you have just closed your long -- but you aren't simultaneously in both an open long and an open short -- they just are netted out. If they are for the same amount, you have zero open on either side.
I have no idea how CFD's work, and it seems like, from what you are saying, that you can have both a long and a short open. If that is so, you are right that you would get protection against further loss, but it would not do anything that a stop would not do. Effectively speaking, you would still be flat an a net basis. No difference.
Have I misunderstood what you are talking about? An example would help to explain it, if I am.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
The following user says Thank You to bobwest for this post:
