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International Investors
Tap into a Hidden Source for Potential Profit
Exchange rates can have a significant impact on profits from foreign investments. Investors who are unprepared for this can be caught in an adverse currency move which can reduce their profits.
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Hedging Against FX Risk

Protecting your investment profits by hedging in the spot currency market is simple and inexpensive, and completely protects your account against currency market volatility. Hedging entails taking a position in the market so that the effects of foreign exchange movements are neutralized, and gives you the peace of knowing that your profits are not vulnerable to movements in the currency market.

Hedging Protects You Against Currency Movements
The principle of a hedge is simple. An investor who has invested his funds abroad wants to make sure that he is protected if the currency of the country he has invested in depreciates. A depreciation in the value of the foreign currency would mean that he gets less of his home currency when he converts his profits.

The simplest way for an investor to avoid a loss like this is to sell the currency of the country where he has invested in the spot currency market. If it depreciates in value, he will profit from his spot position.

Hedging Can Result in Substantial Savings
For example: someone from the UK who is investing 300,000 pounds in the US wants to make sure that when he takes his profits home, he is protected if the dollar gets weaker. To do this, he would sell dollars in his trading account so that he profits if it does get weaker. When he converts his investment funds back to pounds, his gains in the currency market will cancel out any losses caused by exchange rate volatility.

In this example, the UK investor would lose 60,000 of his initial capital after a move from 1.70 to 1.90 like the one shown on the chart! By hedging, he makes the 60,000 back in the spot currency market and thus avoids a significant loss.

Hedging with a Trading Account is Simple and Inexpensive
All hedging takes is a little foresight and a trading account. The total transaction cost of a hedge is minimal-only $150 in the example above. Any losses of investment capital are completely offset by gains in a currency trading account, making hedging an inexpensive and very efficient way to protect against substantial risk.

Opportunities for Profit
In addition to being a place where you can offset risk, the currency markets provide investors with further opportunities for profit. Learn more about how you can apply what you already know as an investor to trading currencies!

A 4-month move from 1.70 dollars to 1.90 dollars per pound hurt the UK investor with funds in the US. Enlarge Chart View