A:When a currency trader enters into a trade with the intent of protecting an existing or anticipated position from an unwanted move in the foreign currency exchange rates, they can be said to have entered into a foex hedge. By using a forex hedge properly, a trader who is long a foreign currency pair can be protected from downside risk, while the trader who is short a foreign currency pair can protect against upside risk.
Spot contracts are the run-of-the-mill trades made by retail forex traders. Hedging is simply coming up with a way to protect yourself against big loss. Think of a hedge as getting iw on your trade. Hedging is a way to reduce the amount of loss you would incur if something unexpected happened. Instead of closing a position at a loss, you could hedge it, win from the hedge, and hopefully, when the pair turns around, win from the original trade too.
What is forex hedging