Posted by forex at 5:28 AM
Read our previous post
1. Determine the value of the currency in the account you want to hedge. This should be available on your brokerage statement. Contact your financial adviser if you are not receiving a monthly brokerage statement.
2. Look up the current value of gold. Gold is a natural hedge against currencies. In fact, when a currency (specifically the U.S. dollar) goes down in price, the price of gold goes up--it is referred to as the 'flight to quality' in forex circles. The ticker symbol for gold in forex is XAU/USD. This is a commonly traded commodity on forex platforms due to its correlation (natural hedge) to currency.
3. Determine the current spot market value for XAU/USD. INO Foreign Exchange provides market quotes (see Resources) or you can ask your favorite forex dealer for quotes.
4. Determine how much of your position you would like to hedge. In the extreme case, a full hedge means performing the opposite transaction on gold. That is, if you are long 10,000 USD, you will want to short (sell) an equivalent amount of gold (XAU). If the value of the dollar depreciates, the price of gold will likely go up, which will help to minimize your losses.