Course Content
What Is Forex Trading?
Forex is the world's largest market by trading volume and liquidity. Brokers, businesses, governments, and other economic agents trade currencies and forex derivatives to enable international commerce. Traders also use the market for speculative reasons. There are various arbitrage opportunities to be found with exchange rates and interest rates, making the market a popular one to trade in large volume or on leverage. The forex market consists of fiat currency pairs and their relative market prices. These pairs are typically bought and sold by the lot. A standard lot contains 100,000 units of the pair's base currency, but other smaller sizes are available, ranging down to 100 units. Traders commonly use leverage to increase the amounts they can invest with their capital. You can also offset risk by using forwards and swaps to trade a currency pair for a specific price in the future. Combining these two instruments with other trading strategies and products creates a variety of investment opportunities for forex traders.
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What Is Forex Trading?
About Lesson

Let’s compare the profit you get here with and without hedging the rate, assuming everything else holds. After going through the covered interest arbitrage strategy in the USA, you’ll have €101,276.60. If you didn’t hedge, you would have €102,000, as mentioned before. So why do people hedge if it leads to fewer profits? 

Primarily, traders hedge to avoid the risk of fluctuations in the exchange rate. A currency pair will rarely stay stable over a year. So while the profit is €723.40 less, we’ve managed to at least guarantee €1,276.60. Another factor is that we assume that the central bank won’t change the interest rate over the year, which is not always the case.

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