Just like we had discussed in today’s webinar, this is an example of an “income trade” that “hedges the wealth position”.
Typically, a hedge is a trade in the opposite direction as a previous trade. This way, the second trade that profits offsets the loss on the original trade. This is due to being “long term long” but for today, “short term short”. This is extremely easy to do as a forex trader. The key is to be long JPY pairs (short JPY) so that you collect interest everyday. For the second, or hedging trade, you MUST close the trade before the end of the day, otherwise you will be CHARGED interest. You don’t want that, since the original long term trade was taken to EARN the carry, or interest payment on your leveraged money.
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