In financial markets, uncertainty is unavoidable. Prices move due to news, interest rates, global events, and market sentiment. To manage this uncertainty, professional traders use a strategy known as hedging.
At Seben Capital, hedging is taught as a defensive trading technique, not a profit-maximizing tool.
What Is Hedging?
Hedging is a trading strategy used to reduce or offset potential losses by taking an opposite or protective position in a related asset.
Simply put, hedging works like insurance. You may give up some profit potential, but in return, you protect your capital from unexpected market moves.
Why Hedging Is Important
Markets can turn volatile without warning. Hedging helps traders:
Limit downside risk
Protect open positions during uncertainty
Reduce portfolio volatility
Maintain emotional discipline
At Seben Capital, capital protection always comes before profit.
Common Hedging Methods Used in Trading
Forex Hedging
A trader may open an opposite position in the same or a correlated currency pair to reduce exposure to adverse price movements.
Options Hedging
Buying put or call options to protect against unfavorable price movements in stocks, indices, or commodities.
Futures Hedging
Using futures contracts to lock in prices and reduce the risk of price fluctuations.
Portfolio Hedging
Diversifying across asset classes or using inverse instruments to balance overall risk.
Example of Hedging
Suppose a trader holds a long position in a currency pair but expects short-term volatility due to economic data.
To protect against potential losses, the trader opens a short position in a related instrument. If the market moves against the original position, the hedge helps reduce the overall loss.
Hedging vs Speculation
At Seben Capital, a clear distinction is taught:
Speculation aims to maximize profits
Hedging aims to minimize losses
Hedging does not eliminate risk entirely, but it helps control risk within acceptable limits.
When Should Traders Use Hedging?
Hedging is commonly used:
Before major economic announcements
During high market volatility
When holding long-term positions
To protect funded or professional trading accounts
Limitations of Hedging
While useful, hedging has drawbacks:
Reduced profit potential
Additional transaction costs
Requires precise planning
At Seben Capital, hedging is applied only when it aligns with the trader’s overall strategy and risk plan.
Seben Capital Approach to Hedging
We teach traders to hedge strategically, not emotionally. Every hedge must have:
A clear purpose
Defined risk parameters
Exit conditions
Because uncontrolled hedging can create confusion instead of protection.
What It Means for Individual Traders
For individual traders, hedging is a powerful risk management tool when used correctly.
At Seben Capital, hedging is combined with market structure, technical analysis, and strict risk management to help traders survive long-term in the markets.