thanks for reply!
If i close the position with SL, it makes loss e.g. 10 pips.
Hedging this position would compensate the loss till the price is coming back.
Hedging a position by another instrument can generate additional losses, if the price also runs in the loss direction.
Therefore, why is hedging a position with the same instrument in your opinion a stupid idea?
If you have a position that is losing 10 pips and you open an opposite position, not considering the spread, you now have a net loss of 10 pips between the 2 positions.
If the new position moves 10 pips in profit, the original trade will be losing 20 pips, so the same net 10 pips loss. As price changes there is no difference in the net loss. So what's the point? You may as well just close the original position.
Also, by holding the 2 positions instead of simply closing the first, you may get additional swap charges.
Proper hedging is to minimise possible losses in unforeseen events
You may feel that a particular oil company will outperform the other companies in the oil sector so you buy shares in that company.
Now you know that if the oil price drops, oil companies' share price will fall, so you hedge by shorting oil. Or you hedge by shorting the oil sector.
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