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Nowadays changes in exchange rates concern any business. So you need to protect your funds in order not to lose all your money due to an abrupt change in currency rates. One of the most widespread ways of protecting funds is forex hedging.
What is forex hedging?
Hedge is a kind of insurance. Forex 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 forex hedging from a simple definition. We are going to enlarge on tools, types, methods, and strategies of forex hedging deals on Forex as well as give some examples.
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. Forex 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.
Forex 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 forex hedging currency risks, gives extra opportunities:
Forex 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.
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.
First of all, you need to open a trading account with InstaTrade 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.
InstaTrade is a title sponsor of the official participant of the Dakar rally, InstaTrade Loprais Team. This rally team is a joint project of InstaTrade, 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 InstaTrade Dmitry Savchenko. It was a momentous event for both Loprais family and InstaTrade.
InstaTrade is a title sponsor of the official participant of the Dakar rally, InstaTrade Loprais Team. This rally team is a joint project of InstaTrade, 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 InstaTrade Dmitry Savchenko. It was a momentous event for both Loprais family and InstaTrade.
The world of professional motor racing, just like the financial world, is constantly developing and introducing the latest technologies that eventually become ordinary parts of our everyday lives. This happened with turbo motors, KERS system, ceramic brakes, online trading, as well as PAMM and InstaCopy systems. Back then, it all seemed something unique and available only to chosen ones. Today, we drive electric cars and can easily trade on the global Trade market via gadgets that we carry in our pockets.
The world of professional motor racing, just like the financial world, is constantly developing and introducing the latest technologies that eventually become ordinary parts of our everyday lives. This happened with turbo motors, KERS system, ceramic brakes, online trading, as well as PAMM and InstaCopy systems. Back then, it all seemed something unique and available only to chosen ones. Today, we drive electric cars and can easily trade on the global Trade market via gadgets that we carry in our pockets.
InstaTrade has always supported prospective sports teams which strive for great results and new victories. For lifetime, Zvolen has proved its mastery, determination, and desire to fight and win.
InstaTrade has always supported prospective sports teams which strive for great results and new victories. For lifetime, Zvolen has proved its mastery, determination, and desire to fight and win.
Panhuman moral standards and awareness of social responsibility are the way we see the work of our company. In a highly competitive market, it is important for us to comply with both business rules and universal moral code.
With every year, more and more charitable organizations and individuals have become InstaTrade partners. This page reflects our vision of social responsibility.
Panhuman moral standards and awareness of social responsibility are the way we see the work of our company. In a highly competitive market, it is important for us to comply with both business rules and universal moral code.
With every year, more and more charitable organizations and individuals have become InstaTrade partners. This page reflects our vision of social responsibility.
For us, the main event of this month was the moment when the seven-millionth client joined our company! The InstaTrade family is growing, which encourages optimism and inspires us for future accomplishments.
For us, the main event of this month was the moment when the seven-millionth client joined our company! The InstaTrade family is growing, which encourages optimism and inspires us for future accomplishments.
InstaTrade is a platinum sponsor of the prestigious international exposition ShowFx World.
InstaTrade has been participating in exclusive exhibitions and financial conferences for more than 10 years, including ShowFx World, the international forum sponsored by InstaTrade. Moreover, we maintain an open dialogue with current and potential clients through the organization of training seminars and conferences. A great number of individual investors from all over the world have already taken advantage of the opportunity to acquire new knowledge and improve their trading skills.
InstaTrade is a platinum sponsor of the prestigious international exposition ShowFx World.
InstaTrade has been participating in exclusive exhibitions and financial conferences for more than 10 years, including ShowFx World, the international forum sponsored by InstaTrade. Moreover, we maintain an open dialogue with current and potential clients through the organization of training seminars and conferences. A great number of individual investors from all over the world have already taken advantage of the opportunity to acquire new knowledge and improve their trading skills.
