Hedge

Hedging in forex is the practice of opening a trade to offset the risk of an existing position. The simplest form is opening an equal and opposite position on the same pair — if you're long 1 lot of EUR/USD, you hedge by going short 1 lot. This "locks in" your current profit or loss regardless of where price goes next.

More sophisticated hedging involves correlated pairs. A trader long EUR/USD might partially hedge by going short GBP/USD, since the two pairs tend to move in the same direction. Corporate hedging is even more common — multinational companies use forex hedging to protect against unfavorable currency movements that could affect their international revenue.

Not all brokers or regulators allow hedging. In the US, the NFA (National Futures Association) banned same-account hedging for retail forex traders, requiring FIFO (first-in-first-out) order closing. If hedging is part of your strategy, verify that both your broker and your regulatory jurisdiction permit it before you start.