Currency Hedging is a way of reducing the inherent risks of trading in foreign currencies. Currency hedging is a strategy which is meant to offset any potential gains or losses on a particular transaction by the use of a foreign currency position. This can be done by either taking a long or short position in the currency of the transaction. There are two types of currency hedges, specific and portfolio. A specific hedge means that the issuer of the hedge will expose the hedge to the same currency, whereas a portfolio hedge means that the issuer of the hedge is a portfolio of currencies.For speculators and investors, a currency hedge can be used as a risk management strategy. The term "hedge" is used to describe the position that is created by taking a long position in a currency to offset the position taken with a short position. These currencies may be different but they are the same currency in terms of the fundamental value of the underlying asset.
