What possibilities does insurance of forex investments offer?

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:

  • It does not imply retrieving considerable funds from the company’s capital turnover;
  • It allows selling a currency which will be received in the future.

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.

Forex hedging process

An example of hedging operation in the currency market:

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.

How to hedge your money against currency risks right now?

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 support@instaforex.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.

Lásd még

Win Lamborghini from InstaForex!

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

InstaForex - official partner of Dragon Racing

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 ForexCopy 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 forex market via gadgets that we carry in our pockets.

More info

Liverpool Football Club became InstaForex partner

InstaForex, and legendary Liverpool Football Club announced a two-year partnership that will run until the end of the 2015/16 season. InstaForex will become the Official Online Forex and Binary Options Trading Partner in Asia and the Commonwealth of Independent States (CIS) of Liverpool FC. The new alliance will see InstaForex offer exciting LFC experiences to their customers who are fans in these markets, including tickets to see the Reds play at home in Anfield.

More info

Will to win – this is what Ilona Korstin and InstaForex have in common!

Basketball player Ilona Korstin who is a multiple European champion and prize winner of World championships and the Olympic Games is the new face of international broker InstaForex for 2011-2012.

More info

Team up with us - win with InstaForex and Zvolen!

InstaForex is the general sponsor of HC Zvolen, one of the oldest Slovak hockey clubs that drafted into the national hockey league. The team is also nicknamed as Knights. InstaForex has a good tradition to support promising sports teams which, as the broker itself, aim to achieve profound results and strive for victory. For the lifetime, Zvolen had proved its mastery, determination and desire to win over and over again.

More info

Trading on top with InstaForex!

InstaForex international broker always strives to provide its clients and partners with the highest grade services. The high level of InstaForex is expressed all along the line: trading conditions usability; a wide range of instruments; highly skilled support team; an individual approach to each client, regardless of the trading volume; speed of deals execution and many other things allowing InstaForex Company to reach the top of Forex.

More info
We invite you to start trading with No Deposit Bonus