Currency variations

[stickerman]

Perhaps a basic question to many of you, but I need a little clarification. I have been running a demo account with some small success. However, as the dollar / GBP has changed, my 'fund' would seem a lot higher than just my 'winnings'. This is fine at present, but it could obviously go the other way, where the fund increases but after changing to GBP the value is less than started. Am I correct in this, is there any way to do something about it, and is this where hedging comes in? If so, could someone give me some advice here please.

 

[Cyclon]

Tip: Remember (or find out) why you're in this.

Tip: Remember (or find out) why you're in this.

The purpose of demo accounts is to learn the business of trading. Carry trades may indeed be an adjunct methodology assuming you find cooperative Central Bank policy relative to your account denominated currency. For most, however, this is a very small aspect similar to paying spreads, just a cost of doing business (or in this case it can also be an extra profit).

The strong trending of Forex can make for a long carry trade but regardless of the direction it makes for much better opportunity when engaged for trading profit. If that takes you against a favorable carry but makes you pips you are happy anyway.

Then perhaps after the skills have been honed and you move to your live account your percent of risk, limiting how much you put on trades becomes a thing to think about more than it had been. But the more important item between having a negative carry and managing risk will always be the risk issue. You won't want to overweight risk to avoid swap.

Hedging is a slightly devisive issue since you are essentially closing up the "Profit Potential Shop" which you opened to do business. There may be many good uses but you are almost always narrowing your focus from a slower and larger timeframe to a faster and shorter timeframe.

This means you must make sure your trading system has variablility to change up the speed or you have another trading system to handle the market adaptive hedge. If you don't, you may miss a portion of the move in the original direction which supposedly you had a good reason to be trading in the first place.

Cheers,
Cyclon

8- )