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What is hedging in Forex?

John Baldock


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Hedging is a term used to describe a strategy that protects traders from adverse movements in currencies such as the USD/CAD pair. A trader might have bought a position in CAD/USD and now wants to protect himself from the possibility that the value of the Canadian Dollar will fall. He can do this by selling some of the CAD/USD position in anticipation of the drop. This is called hedging because he has taken out insurance against the possibility of losing money.

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