Hedging is the simultaneous buying and selling of Forex positions to square off the exposed position, and to offset the risks of changing prices in the cash exchanges, or where the Forex is actually bought and sold. This risk-transfer mechanism has made Forex positions virtually indispensable to companies, banks, and financial institutions around the world for over a century.

    Hedgers can engage in forward contracts or another form of derivatives (although forward contracts are the most widely-used form of derivatives) to protect the home currency value of various foreign currency denominated assets and liabilities on their balance sheets that are not to be realized over the life of the asset.

---