Read About Forex Market
Market Analogs
Forex Hedging can only take place in parallel markets, defined as follows: When an item is valued in one Forex market at a price that correlates significantly with the price of another item in another market, the two markets are considered to be parallel. Market Analogs
Strategy
Now assume you have a client with a liability of 10,000,000 Canadian dollars, and a time span of six months. He decides to transfer the risk of this short position using futures contracts in the forex market. An order is entered in online trade of the CME to buy 100 contracts of September Canadian dollars on the opening. This gives the hedger a long futures position which is equal in size and opposite in direction to his cash market exposure. Strategy
Market Links
"Basis" refers to the difference between two prices in Forex market. Basis is central when spreads and hedges are entered. When someone talks about basis, it is taken for granted that he or she is referring to markets of related products, with prices that move in tandem (i.e., correlate) but the term does not necessarily imply a price correlation. Market Links
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