The significance of hedging is to avoid the risk of one-way trading. This kind of risk lies in avoiding short selling (or short selling) by bullish on a certain currency, and at the same time losing money by bearish on a certain currency. If the judgment is correct, the profit will naturally be more; But if the judgment is wrong, the loss will be very large. Buy strong currency and sell weak currency. If the estimate is correct, the dollar will weaken and the strong currency bought will rise.

The significance of hedging is that investors don't need to close futures trading through delivery, thus improving the liquidity of futures market.

Classical cases and analysis of extended data hedging;

1at the beginning of 990, the Iraq war in the Middle East ended, and the United States became the victorious country. The price of the US dollar rose steadily and strongly, rising against all foreign exchange. At that time, only the Japanese yen was still a strong currency. Shortly after the fall of the Berlin Wall, Germany was dragged down by the poor economic situation in East Germany, and the economy had hidden worries. The political situation in the Soviet Union was unstable, and Gorbachev's position was shaken. At that time, the British economy was also very poor, and interest rates were cut constantly. The Conservative Party was challenged by the Labour Party, so the pound was also weak.

At this point, the significance of hedging is reflected and the risk is avoided.

In other words, if you had bought foreign exchange, sold pounds, marks and Swiss francs, and bought Japanese yen at the same time, you would have made a lot of money. When the dollar rose, all foreign currencies fell, except the Japanese yen, and all other foreign currencies fell sharply. When the dollar weakens and other foreign currencies rise less, the yen will rise sharply. Anyway, as long as you hedge in the market at that time, you will make a profit.

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