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 firstname.lastname@example.org. 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.
InstaForex is a title sponsor of the official participant of the Dakar rally, InstaForex Loprais Team. This rally team is a joint project of InstaForex, Loprais team, a regular participant of the Dakar rally, and automobile concern Tatra, which provides the team with the famous trucks. The agreement on organizing a team was signed in May 2011 by the pilot of the Loprais team Ales Loprais and the Deputy Director General of InstaForex Dmitry Savchenko. It was a momentous event for both Loprais family and InstaForex company.More info
InstaForex is pleased to announce that Norwegian winter sports icon Ole Einar Bjørndalen, 8-time Olympic gold medallist, 20 world championship titles holder, and 6-time overall World Cup winner, becomes a brand ambassador of InstaForex. Cooperation with the greatest athlete in the history of winter Olympics ever symbolically started in winter 2015. Despite his impressive track record since his first victory 20 years ago, Bjørndalen confirmed his status of the "King of Biathlon" at the Sochi Games winning two golds.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
Janko Tipsarević, a Serbian tennis player, is rightly considered to be one of the brightest tennis stars today. In 2001 Janko achieved his first great success, having won Australian Junior Open Championship. However, in contrast to many promising young sportsmen who have never shined in the sky of adult tennis, Tipsarević has become one of the strongest senior tennis players.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
Ales Loprais is the pilot and the PR manager of a rally crew InstaForex Loprais Team. He also owns an auto parts manufacturing company specializing in world-famous Tatra trucks. Ales was born on January 1980 in Olomouc, the Czech Republic, into a family of the Dakar Rally champions. He was brought up in the atmosphere of endless preparations for rallies. Since early childhood Ales has been involved into car repairing, spending more time in the garage than at home.More info