Posted by forex at 7:54 AM
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1. Purchase a currency that has a negative correlation to your existing currency position. There are websites that provide currency correlations data so you can choose the currency that trades in the opposite direction. This technique works well if you intend on earning interest on your foreign currencies and are not concerned about profiting from any capital appreciation.
2. Purchase a forward contract in the currency you wish to buy back at a future date. By securing a future fixed price and buy-back date, you are guaranteed that rate price no matter how the currency fluctuates or settles on that date. The cost to structure a forward contract is dependant on how long you intend on holding your currency position.
3. Purchase a put currency option. A put option gives you the right, but not the obligation, to sell the currency at a set price, which is called the strike price, within a specified expiration date. As the option holder, you are hedging your currency position in the event that the underlying currency will drop below the strike price before the expiration date.Choose a strike price that closely matches your currency price. Your option position will profit after it falls below the option strike price of your currency.