Hedging in the foreign exchange market should be an operation method that many investors have heard of. What I want to introduce to you today is the concept of hedging and foreign exchange hedging strategies. Those who are interested in foreign exchange investment Partners can take a closer look.

Hedging is the most common in the foreign exchange market, focusing on avoiding the risk of single-line trading. The so-called single-line trading is to buy short (or short position) if you are optimistic about a certain currency, and sell short (short position) if you are bearish on a certain currency. If the judgment is correct, the profits will naturally be greater; but if the judgment is wrong, the losses will be greater than hedged.

Foreign exchange hedging

What is a foreign exchange hedge

The so-called hedging is to buy a foreign currency at the same time and go short. In addition, another currency must be sold, namely short selling. In theory, buying a currency short and selling a currency short requires the same silver size to be considered a real hedging order. Otherwise, the size of the two sides is different and the hedging function cannot be performed.

Hedging refers to foreign banks, import and export traders engaged in international commodity trading, as well as people engaged in international investment, if a certain amount of foreign exchange is expected to be received and paid in the future, in order to avoid losses due to changes, forward foreign exchange can be used Trading is to avoid risks. This kind of hedging operation is called forward hedging or forward hedging. It is a way to reduce business risks while still making profits from investment.

Hedging is the most common in the foreign exchange market, focusing on avoiding the risk of single-line trading. The so-called single-line trading is to buy short (or short position) if you are optimistic about a certain currency, and sell short (short position) if you are bearish on a certain currency. If the judgment is correct, the profits will naturally be large; but if the judgment is wrong, the losses will also be very large.

The so-called hedging is to buy a foreign currency at the same time to buy short. In addition, another currency must be sold, namely short selling. In theory, buying a currency short and selling a currency short can be regarded as a real hedging order if the silver code is the same, otherwise the hedging function cannot be achieved if the sizes of the two sides are different.

Foreign exchange hedging strategy

  1. Arbitrage strategy: the most traditional hedging strategy

Arbitrage strategies include convertible bond arbitrage, stock index futures arbitrage, intertemporal arbitrage, ETF arbitrage, etc., which are the most traditional hedging strategies. Its essence is the application of the “one price principle” in the pricing of financial products, that is, when there is a difference in the pricing between different manifestations of the same product, buy relatively undervalued products and sell relatively overvalued products to obtain the intermediate price difference. . Therefore, the risk of arbitrage strategy is minimal, and some strategies are called “risk-free arbitrage”.

  1. Index enhanced portfolio + index futures short rolling year Alpha distribution

Statistical arbitrage performance based on the portfolio of 90 margin trading targets

  1. Alpha strategy: change relative returns to absolute returns
  2. Neutral strategy: starting from the dimension of eliminating Beta

Market neutral strategies can be simply divided into statistical arbitrage and fundamental neutrality. They try to pursue absolute returns while constructing a long-short portfolio that avoids risk exposure. The establishment of long positions and short positions is no longer isolated or even simultaneous. The long position and short position are strictly matched to form a market-neutral portfolio, so their returns are derived from stock selection and have nothing to do with the market direction—that is, the pursuit of absolute returns (Alpha) without bearing market risks (Beta).

Hedging in other markets

The principle of hedging is not limited to the foreign exchange market, but in terms of investment, it is more commonly used in the foreign exchange market. This principle also applies to the gold market, futures and futures markets.