Hedging, Scalping & News Trading – What Are They?
These are commonly known strategies across the Forex and CFD trading markets, but what exactly are they? Here is a light guide for beginners who are interested in learning more about these trading techniques as well as, a brief introduction to technical and fundamental analysis.
To hedge, in trading, is to take an inverse position in an asset or trade that reduces the risk exposure of an existing position.
A hedge is therefore a trade that is made with the purpose of lowering the risk of unfavorable price movements in another asset. Normally, a hedge consists of taking the opposite position in a related asset, based on the required asset to be hedged.
A very basic example is Gold (XAU) which commonly goes up when the economic standings become volatile or go down, especially major currencies such as USD and EUR.
Scalping is a trading technique that aims to profit off small price changes over short periods of time, ultimately building to a large profit for the day.
This kind of strategy usually involves traders setting strict exit points as the gains are often small enough to be easily offset by one large loss on a single trade. This technique requires traders to dedicate time and focus, making sure to watch charts and stay alert to any news or factors that could influence price volatility.
3. News Trading
This strategy is somewhat self-explanatory. It utilizes economic data and major news events to attempt to predict potential reactionary price movements. Due to the nature of global news, there is abundant opportunity when engaging this kind of strategy.
However, unlike technical analysis which aims to be highly calculated and accurate based on specific data points entered into a pre-outlined formula, news trading, which forms part of fundamental analysis, can be much more difficult to predict in certain cases, and requires traders to be aware of the associated risks.
Professional news traders will always follow economic calendars, as it is a gold mine of information with regards to this strategy. It wouldn’t hurt to sign up to breaking news signal providers, newsletters and other resources that can help one prepare for a trade or exit when the market has the potential to turn.
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