Currency funds are exposed to foreign exchange risks. Many companies tend to make calculations in one currency which means that any asset revaluation in a foreign currency is likely to bring about either profits or losses when the rate of a given currency changes. Hedging against foreign exchange risks allows companies to protect their funds from undesirable or unpredictable currency rate fluctuations. Companies may fix the actual cost of funds by conducting deals in the global currency market.
Hedging enables companies to avoid the risk of currency rate fluctuations as well as to plan future business steps and track the actual financial performance, which will not be distorted by market volatility. Moreover, it also provides the opportunity to set prices for goods and services, calculate the company’s profit, salaries, and other expenses.
Hedging against foreign exchange risks with the use of leverage offers additional benefits:
The strategy of hedging against risks in foreign trade operations lies in opening a position on a certain currency opposite to a future position for funds converting.
For example, an importer willing to purchase a foreign currency opens a long position on the trading account in advance and needs to close it by the moment of the actual bank transaction.
Conversely, an exporter is going to sell a foreign currency. Therefore, he opens a short position in order to sell the currency in advance and, by the time of the actual bank transaction, he closes this position.
An importing company is expecting the supply of a consignment from the United States for a certain sum in the US dollars. The company holds euros on its bank account. In order to perform the transaction, the company needs to convert euros into dollars at the bank. By opening a deal on the trading account, the company hedges against the risk of an unexpected dollar rate hike. If it uses the 1:1,000 leverage, it is necessary to invest about 1% of the sum which needs to be hedged. In case the US dollar goes up, the company suffers losses due to exchange rate fluctuations. However, the profit it receives from the deal compensates this loss.
Therefore, the currency price is fixed, and the total sum of profit and loss will always equal zero. As a result, the company eliminates the stress which may be caused by undesirable rate differences and saves funds to use them for other operations.
To start hedging, open a trading account with InstaForex Group which provides online services for currency trading on Forex.
If you wish to make your company’s money flow predictable and have a clear idea of the volume and period of your goods’ realization, then our specialists can open positions on the currency market for you; this will help you to avoid financial losses. If you have any questions related to hedging, please email us at email@example.com. Even if you have never hedged your assets before, we will clearly explain how to do it and develop the most appropriate hedging schemes for your business.
World №1 broker gives its clients a unique opportunity to carry off the legendary luxury sports car! The campaign with Lamborghini Huracan as a main prize will be held from December 26, 2016 to December 20, 2019. Anyone who tops up their account with $1,000 or more and register for the campaign can compete for the posh car. The winner will be determined randomly with the help of Lamborghini-number, so all contenders have a chance to win.More info
Italian football club Palermo has become the company`s new partner. The football club has more than 100 years of history since it was founded in the year 1900. In autumn 2015, InstaForex signed an agreement with the football team from sunny Sicily in the height of the 2015–16 Serie A league. At the moment, Palermo is fighting for the high places in the championship. Such players as Alberto Gilardino, a world champion of 2006 for Italy, and Franco Vazquez, one of the best forwards of the Italian national team at the moment, form one of the strongest attacking lines at the championship in Italy.More info
We are happy to announce a launch of a new super campaign «Win BMW X6 from InstaForex», with the main prize – powerful luxury cross-over BMW X6. The campaign is open between December 28, 2015 and December 29, 2017.More info
InstaForex signed agreement with Czech Airlines on InstaForex branded airplane. Trading with InstaForex means not only convenience and excellent quality of products but also the highest speed of execution. Every day new highs of currency trading become closer and closer for traders cooperating with our company.More info
In summer 2012 at the international trading convention, InstaForex Company demonstrated its branded aerostat with the official logo on it. Trading with InstaForex is an opportunity to rise above the routine, work troubles and financial problems and plunge into your favorite activity.More info
Setting extremely difficult targets, taking the desired height and uplifting the level again - these are the common features of InstaForex and Oleg Taktarov - a sportsman, the world champion of mixed martial arts, an actor and a TV-presenter, a film producer and a writer. A person who achieved everything by himself is a face of the international broker InstaForex.More info