Forex Hedging – a challenging game of MNC's, Professionals and Forex Brokers

Hedging, a derivative tool whose value is derived from underlying asset, helps to insure forthcoming losses into no loss by playing a reverse bet for the current exposure. In simpler terms, locking a deal today to pay off/ receive a future payment/receipt to minimize price fluctuation loss. Forex Hedging is nothing different to the basic definition of hedging. In it, currency of two or multiple countries are hedged to minimize the risk of future losses arising due to currency price fluctuation. Hedging is also approved by IFRS (International Financial Reporting Standards) and US GAAP (US Generally Accepted Accounting Principles) which allows to account for the profits and losses made from such activities. These two entities have their own guidelines for accounting of derivatives. In IFRS, the hedging can be done by two methods, viz; Cash Flow Hedge and Fair Value Hedge.

With the increase in the cross border business, the need and use of currency hedging has increased immensely. Most of the companies having cross border business have deployed specialized teams to predict the currency value movement and accordingly hedge their exposure to reduce their losses. These specialized teams include people like CPA, CFA, MBA Finance, Currency professionals, economist, etc., who in combine effort deals with this risk. Also, on other hand increasing demand of such professionals have given these professionals an opportunity to be self employed and make their own investment in forex market, become currency investment guide, etc. The combination of the above two facts determines the growth of forex exchange round the globe.

The growth of this market has brought in the high demand for forex brokers without whom individuals and small companies cannot trade in currency. High Networth Individuals and big MNC's can get currency trade felicitation from banks but the increasing competition and high end researches have made the brokers favourite choice over banks. It is very important to keep in mind the below mentioned points before choosing a broker;

• The registration country of the broker as many countries doesn't have the privilege of trading in all currencies which will limit exposure to trade in limited currencies.

• Deposit, withdrawal, broker commission, initial start up amount, etc. Should also be considered as per the requirments, volume and frequency of trade.

• One should give high importance to the trading platform provided by the broker/ the broking company because the trading platform plays important role in trade execution rate.

• Reputation of the broker, his customer service and trade execution are other important parameters to be checked to assure high speed and secure trading experience.

There are other aspects also promoting the growth of forex hedging such as 24 hours market allowing to start side income to the experts to earn during non-office hours. High end research reports, multiple factors of movement in currencies, brokers help in placing orders, e-books and guides easy availability to learn forex trading etc. This makes forex hedging a challenging game for everyone to top the list in their own field of activities.

M. Azeem, Ceo – Readyforex.com is a trader specialized in currency trading, his main purpose is to provide a better connectivity with leading Forex brokers.