How hedging trade works for CFD financial instruments?

Unlike some other forms of trading, when it comes to CFDs traders using MT4 platform traders have the ability to hedge their trades, which can be beneficial when it comes to limiting potential losses.

For example, let’s say that you currently have an open position on Dollar/Yen – you “went long” buying the Dollar in the expectation that USD would strengthen against the Japanese currency.

However, you are now having second thoughts – not enough to make you want to close the trade, but sufficient doubt to make you slightly uncertain that your hoped-for currency strengthening will occur.

In other forms of trading, you would have two choices; close the trade now or keep the trade open and cope with the uncertainty.

However, with a CFD you can simultaneously open another Dollar/Yen position in which I short the Dollar – going the opposite way to your original trade, which is still open. Traders should keep in mind that CFDs can only be hedged using the MT4 platform.

If the currency pair subsequently moves the other way to your original trade – with the Dollar falling against the Yen – You’ll still be able to salvage something from the situation, because your hedge will then take effect.

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