Foreign exchange option hedge
A forex hedge is a transaction implemented by a forex trader to protect an existing or anticipated position from an unwanted move in exchange rates. By using a forex hedge properly, a trader who is long a foreign currency pair can be protected from downside riskwhile the trader who is short a foreign currency pair can protect against upside risk. The primary methods of hedging currency trades for the retail forex trader is through spot contracts and foreign currency options.
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Spot contracts are the run-of-the-mill trades made by retail forex traders. Because spot contracts have a very short-term delivery date two daysthey are not the most effective currency hedging vehicle.
In fact, regular spot contracts are usually the reason why a hedge is needed. Foreign currency options are one of the most popular methods of currency hedging. As with options on other types of securities, foreign currency options give the purchaser the right, but not the obligation, to buy or sell the currency pair at a particular exchange rate at some time in the future.
Regular options strategies can be super optsionamindikator them to work with binary, such as long straddleslong stranglesand bull or bear spreadsto limit the loss foreign exchange option hedge of a how much did full house cast make per episode trade.
Not all retail forex brokers allow for hedging within their platforms. Be sure to research the broker foreign exchange option hedge use before beginning to trade.
What is hedging as it relates to forex trading?
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What is a 'Forex Hedge' A forex hedge is a transaction implemented by a forex trader to protect an existing or anticipated position from an unwanted move in exchange rates.
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