TMS Brokers’ 6 Rules of Effective Currency Risk Hedging

1. Hedge the Result

Offset liabilities and receivables in a given currency for a given time horizon. Hedge the resulting net position

2. Set the Hedge Ratio

Define what percentage of your overall currency risk is to be hedged – 60%, 70% or 80%? Set the acceptable degree of exposure to currency risk

3. Diversify

Employ various financial instruments. Transact at several optimal market moments for enhanced hedging flexibility and effectiveness

4. Make Hedging a Priority

Execute hedging transactions prior to detrimental market moves. Thereafter, optimize your position in favourable markets

5. Don’t go to Extremes

Neither inertia nor speculation serves your purposes. Hedge currency risk –understand that inaction is speculative. Avoid transacting against the overall currency exposure of your business

6. Monitor the Market and Manage your Hedge Dynamically

Manage hedges actively. Do not hesitate to close out a hedge position before maturity