How to hedge with forward trading, how to use foreign exchange hedging

The same quantity, the same product, the same expiration date, and the opposite direction can be used for hedging.

Foreign exchange rate hedging can be divided into long hedging and short hedging.

(1) Long hedging:

1.This can be illustrated with examples. For example, if a U.S. manufacturer has a branch in Switzerland, the branch has an excess of 500,000 Swiss francs that can be used temporarily (e.g. 6 months) for the U.S. plant, and the U.S. factory is also in need of a short-term funding.

The best way to do this is to transfer the funds from Switzerland to the United States, let the American factory use it for 6 months, and then return it. To make such a transaction, in order to avoid the exchange rate risk when the US dollar is converted into Swiss francs in the future, they can exchange 500,000 Swiss francs in spot exchange** to US dollars and buy Swiss francs for forward trading, so that there will be no risk of exchange rate fluctuations, which is long hedging.

2.U.S. manufacturers first sell in the spot market, buy in the market, then buy in the spot market, and sell in the market, which is the principle of equal relativity. Only in this way can the losses suffered in one market be compensated by the profits of the other market.

The mystery lies in the fact that whether it is a spot franc or a ** franc, its ** changes are governed by the same factors, and they will rise and fall.

3.The long hedging method is suitable for importers and short-term debtors in the international** to protect against losses due to the increase in the foreign exchange rate of the debt or the amount payable.

(2) Short hedging:

1.We can illustrate this with examples. For example, if a U.S. manufacturer has a branch in Switzerland and is in urgent need of funds to pay for spot expenses, the financial situation will improve after 6 months due to the arrival of the peak buying season.

The U.S. factory happened to have extra funds available for the Swiss plant, so it remitted 300,000 Swiss francs. In order to avoid losses caused by future exchange rate fluctuations, on the one hand, the Swiss franc is bought in the spot market; On the other hand, the same amount of Swiss francs is sold in the ** market. This practice is known as short hedging.

2.It can be seen that if American manufacturers do not hedge, they can make an extra profit of $125, but this is a greater risk. Hedging is to give up the possibility of making a profit in a market and get the best protection.

3.Short hedging is mostly used for receivables in international**. Loans to foreign affiliates, if paid in foreign currency, can also be used to avoid or reduce losses due to exchange rate fluctuations.

Exporters can take advantage of forward foreign exchange transactions for hedging. For example, an exporter with forward foreign exchange earnings can sign a contract with the bank to sell forward foreign exchange and fix the exchange rate, so that after the contract expires, it can be exchanged back to the local currency according to the agreed exchange rate, regardless of the actual exchange rate in the foreign exchange market, so as to prevent economic losses caused by the foreign exchange rate.

Importers with forward foreign exchange expenses can sign a contract with the bank for forward foreign exchange, fix the exchange rate, and after the contract expires, convert the local currency into the approximate currency to pay for the goods according to the agreed exchange rate, which can prevent the cost burden increased due to the foreign exchange rate.

If you hold spot in your hand and are afraid of spot ****, you can buy a short order of the same value on **

If the spot and **** at the end of the period have fallen, then the spot loses money, and the short order makes money, so that the profit makes up for the spot loss and completes the hedging effect.

If the spot and **** at the end of the period have risen, then the spot makes money and loses money, although the hedging pulls down your profit in the spot market, this situation is also a successful hedging.

**The English name is futures, which is completely different from the spot, which is a real tradable commodity (commodity), **not mainly goods, but a standardized tradable contract with a certain mass product such as cotton, soybeans, oil, etc. and financial assets such as **, bonds, etc. Therefore, this subject matter can be a certain commodity (e.g., **, **, agricultural products) or a financial instrument.

The settlement day can be a week later, a month later, three months later, or even a year later.

A contract or agreement to buy and sell ** is called a **contract. The place where you buy and sell is called the market. Investors can invest or speculate on **.

One of the basic economic functions of the market is to provide a risk management mechanism for spot enterprises. In order to avoid ** risk, the most common means is hedging. The main purpose of trading is to transfer the risk of producers and users to speculators.

When spot companies use the market to offset the reverse movement in the spot market, this process is called hedging.

Hedging is also translated"Hedging transactions"or"Haiqin"Wait. Its basic approach is to buy or sell commodity contracts that are equivalent to the number of transactions in the spot market, but in the opposite direction, in order to hedge and close the position and settle the profits or losses caused by the transaction by selling or buying the same contract at a certain time in the future, so as to compensate or offset the actual risks or benefits brought about by the changes in the spot market, so that the trader's economic expected annualized return is stable at a certain level.

The principle of hedging.

First, in the trading process, although the change range will not be completely consistent, the trend of change is basically the same. That is, when the spot ** of a particular commodity tends to **, its ** also tends to **, and vice versa. This is because although the market and the spot market are two separate markets, for a particular commodity, the main influencing factors of the market and the spot market are the same.

In this way, the factors that cause the rise and fall of the spot market will also affect the rise and fall of the market in the same direction. The hedger can achieve the function of hedging by doing transactions opposite to the spot market in the ** market, so as to stabilize ** at a target level.

Second, not only do spot ** and **** move in the same trend, but also, by the time the contract expires, the two will be roughly equal or combined. This is because **** contains all the costs of storing the commodity until the delivery date, so that the forward **** is higher than ****. When the ** contract is close to the delivery date, the storage fee will gradually decrease or even disappear completely, at this time, the determinants of the two ** are actually almost the same, and the **** of the delivery month and the spot ** tend to be the same.

This is the principle of convergence of market trends between the market and the spot market.

Of course, the market is not the same as the spot market, it will also be affected by some other factors, therefore, the fluctuation time and fluctuation range are not necessarily exactly the same as the spot, coupled with the provisions of the trading unit in the market, the number of two market operations is often not equal, which means that hedgers may obtain additional profits when reversing profits and losses, and may also produce small losses. Therefore, when we engage in hedging transactions, we should also pay attention to the factors that may affect the hedging effect, such as basis, quality standard differences, transaction quantity differences, etc., so that hedging transactions can achieve satisfactory results and provide effective services for the production and operation of enterprises.

Hedging is done by using the synchronization of the spot market and the ** market.

For example, if you have a batch to sell in the future, but you are worried about the spot market at that time, then you are now short (sell) the corresponding commodity in the ** market. By the time you want to sell, if the market is really (generally speaking, the corresponding commodity will be), you will have to close the short position that has been established in the market (i.e. **). At this time, the less money you make in the spot market is compensated in the ** market (because you sell high and buy low in the futures market).

If you do, you will lose money in the market, but at this time, the extra money you make in the spot market can be used to make up for the money you make in the market.

The opposite is true. Hedging is not used to make money, it is used to prevent risk, and there is no absolute guarantee of complete hedging.