Is There Such A Thing As A Risk Free Forex Hedging Strategy?

Risk is a key component of the foreign exchange market. From working to understand your exposure to risk and defining the level of risk that you're comfortable with all the way to crafting a risk management strategy, risk sits at the forefront of most decisions that individuals and businesses make when dealing with multiple currencies.

A common question that people ask when looking to hedge: “is there a risk-free forex hedging strategy?” This question is typically asked by people who are especially risk averse. The thing is, if there were such a thing as a no-risk or no loss strategy, risk management wouldn’t exist because, in essence, there would be no risk. Put simply, there is no such thing as a risk-free forex hedging strategy and you should be extremely cautious of brokers or agencies who say that there is.

Forex professionals work with you to first identify your forex risk exposure and then in building a comprehensive risk management strategy that fits within your risk tolerance level, your financial goals, and your business model. Most hedging strategies will place you in a low risk, low reward position in which you are protected from market movements in either direction. Therefore, your risk is mild, but it absolutely still exists. 

There are several things you can do to mitigate your risk in the face of currency fluctuations. Beyond the various hedging strategies, it can be beneficial to trade with less frequency, avoid trading during or around big economic announcements or global events, hedge a suitable amount of overall exposure, and limit your use of leverage within the hedging products you choose to use.

Most risk management strategies depend on knowledge and experience in the forex market. If you’re new to foreign exchange or you’re still learning the ins and outs, it may be helpful to engage an FX specialist at  Shift Connect to support you in everything from setting goals and building strategies to executing and analyzing the success of those strategies.

There’s no such thing as zero risk, but there are countless risk management professionals around the globe that can help protect both you and your bank account.

If you'd like to chat about how Shift Connect's forex and global payments services can help save you time and money, get in touch today.