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Hedging in foreign trade - Handling forex

If you are in business, you know hedging. Hedging is a strategy meant to reduce the risk associated with an investment. It's basically to ensure that you don't lose out on money, but you can do this only by putting some money into it. It can protect you from a change in prices in future. The idea is to make profits and reduce risk.
Now if you are dealing in international trade, then you need to protect yourself from the change in exchange rate. If you don’t protect yourself from the change in exchange rate, you could lose out on profit.

The top forex indicators you need to know

If you already know that the value of the currency you are dealing with is going to rise, then hedging is necessary. So, let’s look at the forex indicators that will help you cut down financial risks associated with the change in exchange rate. But at the same time, you need to understand that considering too many indicators can lead to confusion and inaccurate results. Here are some of the indicators you need to look at:

1. Understanding the trends

Here the trend in prices is observed for a given duration, whether it has gone up or down or remained constant. It helps to smoothen out a price for that duration, and it can be used as an indicator for price in future. So the term we are looking at is the Simple Moving Average (SMA). This is one of the most popular indicators used by forex traders.

2. Volume or interest

Demand affects price, because demand shows if investors are interested. High trading volume shows that the investors are interested, whereas low volume shows that there is a decline in the trend and investors are losing interest.

3. Momentum indicator

Moving Average Convergence Divergence (MACD) helps to identify the momentum. It tracks the momentum of prices changing over a period of time. How fast or how slow the market is changing is a very relevant factor to monitor by these forex traders.

4. Fluctuations

The forex market will have fluctuations. This factor will give an idea about the market activity. To succeed - it is important to note the extent of fluctuations.

Now the indicators are many, and they need to be looked into in isolation and in conjunction with each other. So wisely and cautiously handling the indicators will help you make a better judgement about the market.

When you have a better idea about the market, you will be in a better position to decide whether hedging is necessary. With the forex indicators, you will have a fair idea about the exchange rates, and know whether hedging is necessary.

Those who swear by it are the ones who have been able to successfully look at the exchange rates and prepare themselves for what’s to come.

Of course, there is a cost involved in hedging; a risk to avoid a risk. But when you are sure that the market is not going to be in your favour, hedging is a sure-shot way to make a profit at an affordable cost.

7 Jun 2017 16:25

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About Boris Dzhingarov

Boris Dzhingarov graduated UNWE with a major in marketing. He is the CEO of ESBO ltd brand mentioning agency. He writes for several online sites such as Tech.co, Semrush.com, Tweakyourbiz.com, Socialnomics.net. Boris is the founder of MonetaryLibrary.com and cryptoext.com.




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