Definition – What does Offsetting Position mean?
An offsetting position refers to a trade where equal amounts of the same currency are bought and sold in two different trades. For example, a trader may go long the USD/JPY and then short the EUR/USD. As long as the positions are the same size, the purchase of the USD in the first trade is offset by the sale of the USD in the second. Offsetting positions can help traders create currency pairs that are not generally available by using an intermediary currency.
ForexTerms explains Offsetting Position
Offsetting positions are most frequently used in order to create a synthetic cross currency pair where the U.S. dollar plays the middleman role. Nowadays, however, traders have a wide range of cross currency pairs to choose from, so the attraction of offsetting positions has diminished. Offsetting positions can still be used to create unique pairs, but they also require twice the capital to create the same trade value as buying one of the more traditional currency pairs.