of the strategy is targeting price asymmetry. Your overall downside is: the 100 pips between your long position and the exercise price, plus the cost of the put. But if the market falls, the call's premium can go no lower than.
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The further out of the money, the cheaper the premium you will have to pay for the put. This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Following on from this analogy: the difference between the exercise price and the level at which you are long on the underlying, is a bit like a deductible of the insurance policy. Therefore, you have lost only 100 pips. With this account, they would not have to worry too much about the losing cash. Doing so would allow them to focus on their core business of flying passengers. However, the advantage of hedging is that you can also make money on the hedge trade if you careful select the second trade. In this case, you can go long EUR/USD and short USD/JPY to hedge your USD exposure. The stop-losses are a critical tool used in Forex trading to limit losses if the trade doesnt go as planned.