I came across a poll being run by the folks at BabyPips today. The question is "Do you usually trade using hedging, i.e. making the opposite trade of the one that is currently open?" When I checked on the results this morning it showed that 29% of respondents responded that they do indeed use this sort of "hedging" (though I couldn't see the actual vote count). This strikes me as a very high number, considering there is no economic benefit to this activity, and it can actually cost the trader money in the form of additional spread and carry costs. Maybe it's a function of BabyPips being largely a newer trader oriented forum.
In retail forex, "hedging" has long been a hot-button subject. When the NFA ruled that US brokers could no longer use that type of accounting ("hedging" in this fashion is nothing more than a method of accounting), it created something of a firestorm among traders. My No More "Hedging" for Forex Traders post at the time remains by far the most commented one on my blog, with strong views expressed on both sides.
Needless to say, this sort of "hedging" will not be among the risk management subjects I will be discussing in Wednesday's webinar. Instead, the focus will be on understanding volatility in the markets so one can be better prepared both for the risks implied and the opportunities it presents.
What you see here is a comparison of daily volatility between the S&P 500 and the USD Index. The plots show the percent change for each market for each day, expressed as a positive figure (so a -1.5% would be plotted as +1.5%). As we can see, the stock market has moved around quite a bit more than the dollar has since the beginning of July, a time which encompasses things like the US debt ceiling debate and continued European sovereign credit issues. There may be a couple of sessions where the dollar was more volatile, but mostly the stock market moved markedly more than the currency index. That means on a strictly price volatility basis, the USD Index is quite a bit less risky than stocks. This is something investors looking for opportunities to diversify need to know.