With any floating currency, there is always the chance that the exchange rate will move. While speculators try to make profits from volatility, others value stability. For example, a company planning to expand internationally may want to lock in an exchange rate to better plan its expenses. They can do this quite easily with a process called hedging.
What Is Forex Trading?
Even speculators might want to lock in a specific exchange rate to protect against an economic shock or financial crisis. You can start hedging your FX rates with various financial instruments. The most common methods are using futures or options contracts. With a futures contract, an investor or trader is obliged to trade at a specific rate and amount at a future date.
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