Forex Investment and Currency Trading

Hedging is about eliminating or reducing risk. In financial markets, hedging refers to a transaction designed to insure against an adverse price move in some underlying asset. In the forex market, hedgers are looking to insure themselves against an adverse price movement in a specific currency rate.
Hedging for international trade purposes
One of the more traditional reasons for hedging in the forex market is to facilitate international trade. Let’s say you’re a widget maker in Germany and you just won a large order from a UK-based manufacturer to supply it with a large quantity of widgets. To make your bid more [...]

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Long RUB in 12-month NDF versus a basket of 55% USD/RUB and 45% EUR/RUB with a stop on a one-day close of the basket above 29.97.
Long MYR/PHP positions with a stop on a one-day spot close now below 13.40.
Short US$/CHF at the level of approximately 1.0170 with a stop on a one-day close above 1.0520.

Top Trades for 2008
1. Long a basket of MYR, SGD and TWD, funded in US, opened on 28 November 2007 at
100, now 104.80 spot, 3.09% carry adjusted performance.
2. Close short GBP/JPY, opened at 228.259, closed on 24 January for a total return including
carry of 8%.
3. Short [...]

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A Knock-in Tunnel is a zero-cost structure that is similar to a standard Tunnel, except the potential benefit rate is unknown at inception. If spot trades at the knock-in level before expiry, the structure knocks into a regular tunnel that has a benefit level worse than a standard tunnel. If spot does not trade at the knock-in level before expiry USD dollars can be sold at prevailing market rates. The protection rate is generally the same for both the standard and Knock-in Tunnel.
Benefit

Provides a hedge against a USD depreciation
The buyer has the opportunity to benefit in a USD appreciation up [...]

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Tunnel
The Tunnel establishes a range within which currencies may be exchanged on a specific date in the future. The range of possible exchange rates are bound by a worst-case or “protection” rate and by a best-case or “benefit” rate. The Tunnel is structured as a combination of two out-of-the-money options, where the purchaser of the Tunnel buys an option struck at the protection rate, and sells an option struck at the maximum benefit rate. Generally, the Tunnel is structured to be zero-cost; however, the range and/or the benefit level can be improved by paying an up-front premium, also known as [...]

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A buyer of a CAD Call buys the right, without the obligation, to exchange a fixed currency amount for another at a set strike price on a specific future date. Unlike a spot or forward transaction, the buyer of the CAD Call is not obligated to buy CAD. If USD/CAD spot at expiration is below the strike, the holder of the CAD Call will exercise the call and buy CAD / sell USD at the strike. However, if spot is above the strike expiry, the holder will not exercise the CAD call and can buy CAD / sell USD at [...]

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