When I talk about Hedging, I am not referring to your uncle’s obsession with designing his garden with tall bushes shaped like sports cars or giraffes! Hedging is a technique that every trader or investor should be familiar with it.
The best way to understand hedging is insurance. When traders or investors try to hedge, they are insuring themselves against negative events. If you are fully hedged in case of an unfavorable event, the negative impacts on your positions are significantly reduced.
Reducing the risk of an adverse price movement, hedging, is a critical component to employ in your trading strategy. Hedging is an advanced investing strategy, yet the principles of hedging are quite simple. For example, imagine your cousin who is in New York and wants to visit the UK—he soon calls and tells you to go to Western Union to buy him 1000 GBP and pay maximum 1310 USD for the transaction. When you get to the Western Union, you manage to buy the 1000 GBP for 1290 USD. You still decide to sell GBP to your cousin at the price he was willing to pay, 1310 USD. You made 20 USD in profit, and you hedged yourself from any risk against price movement.
So if you quote your clients with an agreed spread—let’s say 0.5 on 100K EUR/USD, and you get access to very tight spreads on EUR/USD from 0-0.1, you are hedging yourself.
We work with our customers to identify and manage their Forex and precious metals portfolio exposures. We have developed a process through a deep understanding of risks that their business is facing. Our solutions are intended to help your business grow and let us grow with you. Tradeview is dedicated to working with our clients every step of the way.
Changes in the foreign exchange markets can occur instantaneously, even faster than human reaction times particularly in the age of algorithmic, robot trading. Using automated market orders, you can make sure your business is protected against downside risk when unpredictable events happen.
We have worked with our experts to come up with a process to build a hedging methodology for Spot Forex and Precious metals that best fits your risk appetite and market position. This dynamic process facilitates access to regular market price updates and product information—both protecting your profit margins and maintaining the ability to participate in market movements.
Our Six steps Hedging Process:
- Recognize the nature of FX and precious metals exposure.
- Develop a simple risk management policy and strategy.
- Specify your profit margin, budgeted rates/goals.
- Qualify the right tools and products that best suit your goals.
- Execute your strategy.
- Evaluate your plan and adjust for changing markets, start from process #1.
