Notes on using a hedging EA and penalties from brokers ①

Within EA are those called "simultaneous long and short positions"「buy and sell positions held at the same time」which some exist.

Originally, hedging (both positions) is「holding both a buy position and a sell position at the same time to lock in profits/losses or to temporarily hedge risk」one of the trading methods used for this.

However, in the context of EAs, the meaning of hedging is somewhat different.

EAs mechanically decide whether to enter trades based on indicators and price movements, but even if you already hold a buy position「enter a sell when a sell signal appears」an EA that hedges is an EA that hedges by hedging positions.

In other words, at the time of entry,「whether you hold the opposite position is not considered in the trading decision」This is what an EA that hedges is all about.

The advantages of making an EA hedge are「to enter when there is an advantage to either a buy or sell regardless of the existence of the opposite position in evaluating the trading rule」.

As a result, it may initially be judged as a buy and a position opened, but if a sudden drop occurs later, since a sell entry is also executed simultaneously, the overall result may end up in profit.

On the other hand, the disadvantages of hedging an EA are「even in clearly favorable buying opportunities, if the trading rule says to sell, you end up making unnecessary trades」, and「the risk of double-blind losses (back-to-back drawdowns) increases」.

Also, for single-position EAs, if hedging is enabled, the maximum number of positions becomes two (buy and sell), whereas single-position EAs that do not hedge tend to have fewer trades since they do not hold other positions.

While some FX brokers prohibit hedging, in general「hedging within the same account is not prohibited」among many brokers.

By allowing hedging, brokers earn revenue from spreads and other fees, so many brokers permit it within their rules.

However, there are also strictly prohibited actions to be aware of.

etc. will incur penalties, so never do it.

Details will be explained next time.