What is hedging?

Hedge is a kind of insurance. Hedging currency risks is actions meant to lessen risks related to volatility of foreign exchange rates. When traders decide to hedge, they decide to protect themselves from possible losses.

However, it is difficult to grab the principle of hedging from a simple definition. We are going to enlarge on tools, types, methods, and strategies of hedging deals on Forex as well as give some examples.

Hedging tools

Key hedging tools include financial derivatives such as futures and options.

  • An option gives its owner the right to buy or sell a chosen asset at an agreed-upon price in the future.
  • Futures obligate the owner to purchase or sell an asset at a predetermined future date and price.

These tools can be applied separately or combined. There is quite a number of such combinations.

Hedging strategies

A wisely chosen strategy increases success chances. Here are listed some of the strategies.

Hedging futures. Selling futures in the derivatives market in the volume compatible with the volume of hedged goods.

Buying put options. A put option gives you an opportunity to sell futures at the time and price convenient for you. When buying a put option, you fix the minimum price so you can profit from a higher price in the future.

Selling call options. A call option seller will have a bit bigger advantage than a call option buyer. The latter one will have a reward from selling every unit of a call. The seller can sell futures at the execution price.

When choosing a strategy, take into account the current economic situation and all possible prospects and keep analytics in mind.

What opportunities does Forex hedge give?

Funds kept in foreign currencies are prone to currency risks. A company’s accounting is usually carried out in one currency, which means some profits or losses may appear when re-evaluating items in another currency due to different exchange rates. Hedging currency risks allows the company to protect its funds from undesirable and unpredictable changes in exchange rate dynamics. The company fixes the value of current funds through trades in the international currency market.

Hedging helps the company avoid risks of currency fluctuations and plan further work. It also shows real financial results not affected by currency volatility as well as production value, corporate revenues, wages and other expenses.

Using leverage, when hedging currency risks, gives extra opportunities:

  • Allows a company to save significant sums of corporate cash flows;
  • Allows a company to sell currency that it will receive in future.

Hedging corporate risks at foreign trade operations implies opening a currency position opposite a future funds conversion.

For example, an importer opens a buy deal on a certain currency beforehand and closes it once the real purchase in the bank takes place.

An exporter, on the opposite, sells foreign currency and has to open a sell trade beforehand and close the trade when the real sale takes place.

Forex hedging process

Example of hedging on Forex

Suppose an importing company has been awaiting a shipment of a certain value from the United States for n days. The company has euros on its account. To make a deal, the company has to convert its euros into the US dollars. The company decides to hedge risks of a sudden surge in the greenback. With the 1:1,000 leverage, around 1% of the sum that will be hedged should be invested. If the dollar starts rising, the company will suffer losses; however, profits generated from the opened trade will offset the losses.

Therefore, the currency exchange rate is fixed; and profits with losses equal zero. As a result, the company does not need to worry about undesirable changes in currency rates and saves money for other operations.

How to hedge your funds against currency risks right now?

First of all, you need to open a trading account with InstaForex which renders currency trading services.

If you want to make your company’s cash flow predictable and you know volumes and terms of goods selling, our specialists can open certain market positions to help you avoid losses. If you have any questions, feel free to contact us at support@instaforex.com. Even if you have never hedged assets, we will clearly explain how to do it and develop the plan that will suit your business the most.

Vidi takođe

InstaForex Loprais tim – zvanični učesnik Dakar relija

InstaForex je glavni sponzor zvaničnog učesnika Dakar relija - InstaForex Loprais tima. Ovaj reli tim je zajednički projekat InstaForex-a, Loprais tima, redovnog učesnika Dakar relija, i automobilskog giganta Tatre, koji tim snabdeva poznatim kamionima. Dogovor o formiranju tima potpisali su u maju 2011. godine vozač Loprais tima - Aleš Loprais i zamenik generalnog direktora InstaForex-a - Dmitrij Savčenko. Bio je to veoma značaj događaj i za Loprais porodicu i za kompaniju InstaForex.

Više informacija

BMW X6 od InstaForex-a

Sa radošću možemo da najavimo početak nove super kampanje «Osvoji BMW X6 od InstaForex-a», čija je glavna nagrada – moćno luksuzno vozilo BMW X6. Kampanja traje od 28. decembra 2015 do 29. decembra 2017. godine.

Više informacija

InstaForex - zvanični partner Dragon Racing-a

Svet profesionalnog moto sporta, baš kao i svet finansija, se konstanto razvija i predstavlja najnovije tehnologije koje vremenom postaju deo naše svakodnevice. To se dogodilo sa turbo motorima, KERS sistemom, keramičkim kočnicama, onlajn trgovanjem kao i sa PAMM i ForexCopy sistemima. Nekada je sve to izgledalo kao nešto jedinstveno i dostupno samo odabranima. Danas, vozimo električne automobile i možemo jednostavno da trgujemo na globalnom forex tržištu preko uređaja koje nosimo u našim džepovima.

Više informacija

Želja za pobedom – to je ono što Ilona Korstin i InstaForex imaju zajedničko!

Košarkašica Ilona Korstin, višestruka evropska šampionka i osvajačica nagrada na svetskim šampionatima i Olimpijskim igrama, je novo zaštitno lice međunarodnog brokera InstaForex za 2011-2012. godinu.

Više informacija

Izvanredan teniser je postao zaštitno lice InstaForex-a

Janko Tipsarević, teniser iz Srbije, se sa pravom smatra jednim od najboljih tenisera današnjice. U 2001. godini Janko je ostvario svoj prvi veliki uspeh, osvojivši Australian Open u juniorskoj konkurenciji. Međutim, za razliku od mnogih mladih tenisera koji nikad nisu zasjali u svetu seniorskog tenisa, Tipsarević je postao jedan od najboljih tenisera u seniorskoj konkurenciji.

Više informacija

Loprais i InstaForex: tradicija, napredak, liderstvo

Aleš Loprais je vozač i portparol reli ekipe - InstaForex Loprais tim. On je, takođe, vlasnik kompanije koja proizvodi delove za automobile specijalizovane za svetski poznate Tatra kamione. Aleš je rođen januara 1980. godine u Olomoucu u Republici Češkoj u porodici šampiona Dakar relija. Odrastao je u atmosferi stalnih priprema za relije. Od najranijeg detinjstva Aleš se bavio popravkom automobila, provodeći više vremena u garaži nego kod kuće.

Više informacija
Start trading with
no risks and investments
With new Start-Up Bonus of $2500