Hedging

Hedging is the insurance of risks connected to changes in asset value. Hedging helps "freeze" beneficial exchange rates or asset values for you for whatever time period you need. For instance, if you hedge your funds, you will not lose any money regardless of any possible fluctuations in the exchange rate.

However, hedging doesn't allow you to make a profit on currency transactions — for that, there are other tools.

How does it work?

Let's assume that in a month you plan to make a deal that includes the sale or purchase of assets. You'd like to fix the current value of the assets or currency you plan to make a deal with. Using hedging you can "freeze" the prices, even if you don't have the full asset costs at the time.

Step One — speak to the management company. They will help you calculate the volume of the deal, choose a suitable brokerage company, and assume the right market position.

After you assume the position, currency market fluctuations and value changes for the assets that interest you won't affect the parameters of the deal. If the asset values change unfavorably for you, then the market positions will bring a profit that will compensate for the losses. If the asset values change in your favor, then the market positions will carry losses that compensate the profit.

You lose nothing — no matter how the currency rates and asset values change, you will maintain the price fixed during hedging.

When is hedging necessary?

Hedging is necessary when you need to eliminate the risks associated with changes in asset or currency values.

Examples of situations when hedging is appropriate:

  • You are buying or selling something in a foreign currency.
  • You would like to eliminate some of the risks in your business and "attach" yourself to a non-ruble currency or currency basket. For instance, your company wants to store capital in the following currency basket: Swiss francs, euros, and dollars.
  • You are planning a future deal and would like to "freeze" current prices for the future.

We recommend consulting with a management company so that you can focus on your business and not on analyzing potential risks.