Investors sometimes mix up “Lock” and “Hedge” notions, which arecompletely different. “Lock” is when you open up Long and Shortposition on the same instrument, lowering your margin requirements, andthat’s what NFA prohibited some time ago. “Hedge” on other hand isopening Long position for Instrument A, and opening short position insame time for Instrument B, and this is called “hedge” only when A andB are moderately correlated, otherwise it wouldn’t give any gains.

In Expert Advisor Pro Advisor 5 we use hedge technology. Expert Advisor purchase few contracts of Japanese Yen through EURO, US Dollar, and sell US Dollar through Australian Dollar and New Zealand Dollar. It’s well known that NZD and AUD have high negative correlation with JPY, especially when bulls rule the stock markets.


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The AUD and NZD  tends to have a negative correlation with the CAD, CHF and JPY currencies  because the AUD and NZD  is quoted in U.S. dollars, while the others are not. The correlation with CAD could also be due to the positive correlation of the Canadian dollar and the Australian dollar or New Zealand Dollar, because they both have similar economic structures, because they are both resource-based economies.

Thus, lowering the risks for high volatile USD movements, Expert Advisor still earns the money on both shorts and longs.
 “Hedge” positions are allowed and most welcome by investors thanks to another benefit: according to Markowitz portfolio theory, published in 1959, diversification can lower the protfolio’s risk while rising the expected return.  

The risk in a portfolio of diverse currencies  will be less than the risk inherent in holding any one of the currency.  Consider a portfolio that holds two risky currencies: one that pays off when oil prices  grow  and another that pays off when it doesn't  grow. A portfolio that contains both assets will always pay off, regardless of oil prices   grow or not. Adding one risky asset to another can reduce the overall risk of an oil prices  independent  portfolio.
So, by using hedge technology, you basically increase the average profit per year by spreading your risks.

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