ForexGen | What Does It Cost to Trade Currencies?

An online currency trading account (a “micro-account”) may be opened for as little as $100. Mini-accounts start at $300. Do not laugh—micro- and mini-accounts are a good way to get your feet wet without taking a bath. Unlike futures, where the size of a contract is set by the exchanges, in FOREX you select how much of any particular currency you wish to buy or sell. Thus, a $3,000,000 grubstake is not unreasonable as long as the trader engages in appropriately sized trades. FOREX mini-accounts also do not suffer the illiquidity of many futures mini-contracts, as everyone feeds from the same currency “pool.”

ForexGen | Hedging Technique

A hedge is a position or combination of positions in one security that reduces the risk of your primary position in the same security.

An example of hedging in commodity futures is the Midwest farmer who grows #1 Soft Red Wheat and intends to take his harvest physically to market for September delivery. After rilling the soil and planting the seeds in late spring, die farmer initiates a short (sell) commodity futures contract for September Wheat at the Chicago Board of Trade at what he feels is a fair price. If the price of wheat declines dramatically in September, the farmer will suffer losses on his physical delivery but will make profits on his futures contract. If the price of wheat rises substantially in the fall, the farmer will make profits on his physical delivery but will suffer losses on his futures contract. Thus, hedging not only reduces risk but can also be used to lock in predetermined profits in some situations.

Normally when you have an open position to buy or sell at your FOREX dealer, and you open a new position in the opposite direction, the two positions will close each other out. If you had a position for USD/CHF to buy and you opened a new position USD/CHF to sell, both positions would close, since you cannot be buying and selling currencies at the same time. The feature of hedging however, allows you to do exactly that if your FOREX dealer offers this trading feature.