The most widespread method of trading currencies is simply to open spot positions. Using MT4, or what ever platform your broker uses, you simply open your long or short on the currency pair you want to trade.

Of course there is some advantages to doing it that way; however, the various forums are filled with people looking for feasible information on hedging. That gives you just one example that many traders are not satisfied with the simple way of trading. The thing is, thanks to US NFA rules, few brokers (even those not in the US) permit hedging, and those few that do, the implementation is weak at best.

Therefore, let me describe how to trade Forex ... in a way that allows you to hedge WITHOUT reducing almost all of your profit; even if you are in the US.

Forex Trading Strategy #1 - The Option Cover

To use this tactic, begin by opening your position like usual.

What you do differently is that you then buy a call or put option on the same currency that is "close to in the money" ... but for the other direction. Because you’re dealing with an option, your actual "outlay" and risk is much less. But so is the profit you stand to make on it.

The "hedging" nature of this method can allow you to reduce a loss should the market move against you.

The Back Spread - Forex Trading Strategy #2

Options are also used in this method. These strategies are very similar. In the first one, you used "close to the money" options. In this one, you want to use "far out of the money" options. Otherwise, they are both very much the same. While these strategies are very similar, don't let that fool you. While in operation they are the same, their uses are quite different.

This tactic is most useful during highly volatile conditions. When the market is volatile and moves quickly against you, it is possible to find yourself in a position of winning no matter what happens.

Options that you get "far out of the money" when you get them can have significant payouts should the market move sharply in their favor. You can literally find that because the market shot strongly against your spot trade (hopefully you see that and exit out of the losing spot trade before too long) that the option payout is quite significant.

This method is traded right before high impact news releases that you believe will cause major movement. Given that you are opening the position before the release of the news, you have no way of knowing what the news will say and therefore no sure way of knowing which way the market will move. However, if you are correct and the release does drive huge activity, you can cover yourself simply by opening a spot trade in one direction and a far out of the money option for the other direction.

Now you wait for the release to come out, see what the market does, and you exit one of the positions depending on actual price action.

Forex Trading Strategy #3 - The All Option Play

I don't understand why so few traders utilize options. Including options/futures as part of your arsenal of forex trading strategies gives you many more ways of opening up avenues of trading profits while also mitigating loss.

The reality is that you can profitably trade, with lower risk, without opening the normal spot trade at all. You see, many of the most successful traders I know trade that way.

Options can make you a much more successful trader, it just takes learning more about them.