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Hedging

Hedging                                                                                                                                         

Only on FOREX market in the period of global financial crisis it is possible to hedge your business risks which were induced by the considerable fluctuation of the exchange rates on the currency market.
InstaForex is one of few companies offering to the Clients of service of consultation on hedging and realisation of the program, directed on hedging of a base asset.

Why Forex market is the only way to insure your capital in the macroeconomic crisis period?
Companies which deal with foreign-trade operations all over the world (exporters and importers), are active participants at the international currency Forex market. Exporters have a constant interest in selling foreign currency and importers have an interest in purchase of exchange. Currency exchange is permanently changing especially in the period of macroeconomic crisis. As a result the real price of the buying or selling commodity can considerably change, and a contract which seemed to be profitable can become detrimental in the end. There are analytical departments in big companies which deal with export and import operations. At the moment high volatility of the financial market is observed and it is the reason of impossibility to insure the capital especially for a long period of time. That is why capital investment in Forex currency market is the only way of hedging.

What possibilities the insurance of losses invested in Forex market gives? Your funds as well as future profit or expenses in foreign currency are exposed to currency risk. Calculation in many companies is usually made in one currency (for instance, Dollar, USA), therefore as a result of revaluation profit and expense item in foreign currencies there can be profits or expenses when the currency exchange changes. The currency risk hedging is funds defense from the currency rates changes, which contains the fixation of the actual currency price by means of deal conclusion. Hedging leads to the fact that the risk of the currency fluctuations disappears for the company. This fact gives the opportunity to plan the future business and see the finance result, which will not be distorted by the currency fluctuation. It also gives the opportunity to set the prices, calculate the profit, salaries, etc.

Hedging of the currency risk with the help of deals without flow of funds (using the leverage) gives the additional opportunities:

  • allows not to retrieve considerable funds from the turnover of capital
  • allows to sell the currency, which will be received in future
It is assigned two hedging types - Buyer hedging and Seller hedging. Buyer hedging is used for decreasing the risk connected with the possible increase of the good’s price. Seller hedging is used in the opposite situation - for limitation of the risk connected with the possible decrease of the good’s price. The common hedging principle under foreign trade operations lies in opening currency position at the trading account as a future position for funds converting. Importer needs to buy foreign currency that is why he/she opens a position buying on a trading account in advance and when a moment of a currency purchase in his bank comes he closes the position.

Exporter needs to sell foreign currency that is why he/she opens a position selling the currency on a trading account in advance and when a moment of a currency purchase in his/her bank comes he/she closes this position. For starting hedging it is necessary to open a trading account in the company, InstaForex Companies Group which provides services for trading at Forex market.

Actions of the company on risks hedging which imports goods from Europe: company-importer waits for the supply of a parcel from Europe on the certain sum in Euro during the month. Company has dollars on its account and it has to converting dollars into Euro in its bank. That is why the company decides to hedge the risk of Euros price hike making deals on a trading account by means of opening deals in opposite direction. Using leverage 1:1000 it is necessary to invest 1% of the sum, which should be protected. In case the Euro goes up in price the company suffers losses because of the high market’s volatility with the Euro conversion in bank, but profit on the trading account compensates this loss. Profit and loss total sum will be zero. In this way company relieves itself of bother about the possible Euros price hike and safes funds for other operations.

Hedging expenses are rather trivial in comparison with the sum of hedged contracts. The aim of hedging is not the generation of profit but the decrease of potential losses. That is why hedging efficiency in the crises period and subsequent two - three years may be appreciated taking into account the main activity of the trading company. Well built hedging program decreases not only risk but also expenditures due to release of the company’s resources.

If you want to make your money flow predictable, imagine volume and period of your goods' realization, then our specialists can open positions at the currency Forex market for you and it would help you to avoid the losses. If you have any questions about hedging you can contact us by e-mail: support@instaforex.com. Even if you have never used hedging of the assets, we will easily explain you how to do it and work out the most appropriate for your business schemes of hedging.








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Forex Trading Brokers Rebates Program
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