When traders talk about hedging, what they often mean is that option strategies in forex want to limit losses but still keep the potential to make profits. Of course having such an idealized outcome has a hefty price. Ultimately to achieve the above goal you need to pay someone else to cover your downside risk.
In this article I’ll talk about several proven forex hedging strategies. The first section is an introduction to the concept which you can safely skip if you already understand what hedging is all about. The second two sections look at hedging strategies to protect against downside risk. Pair hedging is a strategy which trades correlated instruments in different directions. This is done to even out the return profile. Option hedging limits downside risk by the use of call or put options.