Important Term Forex Trading 3 : This article is a continuation to the article Forex Trading Term 2 is important here to talk about the most important concepts in Forex trading continues as follows: 

Hedging or Cover
Cash flow statement illustrates how the current principal is expected to occur at some point within a specified period. If you still want this amount (ex) actually received may be less than expected, or the amount to be paid (in advance) (ex post) may be greater than expected (ex ante). It would be a financial risk in this case, expected, in fact, is not the preferred rotation. To avoid this risk, it is necessary to take action to protect and cover.

Hedging can reduce or protect against loss of heavy trading, we bet against, without injury, loss and risk-based medicine or shield. In the context of this discussion to eliminate fence net position or the position of an interest rate swap (GAP) means the beginning of a transaction contrary to lock or interest rate (in advance). Sometimes identified with the feeling of safety cover. This may be because these two words mean "protection" of the estimated receipts and outflow expected interest rate and exchange rate changes are not expected to.

Foreign Exchange gains or losses that should not be for the benefit of the village or the position of maturity. In this position, to be satisfied, but the sign (forward), it is still possible ways to achieve profits or reduce losses, and "extended" position or sandals. I decided to meet or not meet our expectations for market advantage based on reversal is expected. Decision (for now), for example, one day I hope the level of dollars on the New Zealand dollar will depreciate 91 days to accept the short-term and long-NZ $ 91 USD a day to arrive, it turns out that the currency risk, the dollar New Zealand dollar rose more than the expected market faster today. If so, (91) we have the first two options, accept the loss of foreign exchange and promptly shut (off), followed by 91 days 91 days (Flip) percentage points, say, one hundred and twenty days of Hope NZ $ $, so be sure have enough money to make up for losses. Rolling in the back reinvestigation activities (reinvestment) certain money market funds or delay of one currency into another currency at a certain deadlines in the coming days to reduce expectations of profits or losses.

Covered Interest Arbitrage (CIA)
The Covered Interest Arbitrage (CIA) is an action or policy, profits, people buy currency financial instruments supersaturate certain basic foreign currency in the forward market instruments currency menstrual future value basis. This strategy can be done if the interest rate differential, the difference between the exchange rate (the rate of decline in the level). So far, there is no difference between this difference may be the benefits obtained by the action of the CIA. Basically, what currency should the CIA holds the answer to the second question, and the currency in which the investment?

Not necessarily the answer to the first question interest rates lower. Instead, to answer the second question, we heard repeatedly that the investment rate is higher. If there is no investment borrow forward currency exchange rate and the spot rate is the same rate is a very important factor. In this context, the U.S. Central Intelligence Agency to explain why. Former CIA claims that it is necessary, the concept of premium / discount
  1. Selling discount rate is lower than the spot price (or cost) relative currency forward exchange transactions are not likely to develop.
  2. Flowers are sold at the front desk of premium currency transaction currency (or more expensive, higher than the spot rate) bloom.
Premium / Discount concept, can be developed with the assumption that the actions of the CIA, namely:
Proposition 1: If the part of certain forward currency discount is less than the interest margin, which is the monetary means all profits from the CIA, which is spending money down loans and invest in yielding currencies higher and sell their property, investment currency risk spending less.

The second suggestion: if the share of foreign exchange forward discount is greater than the interest rate, foreign exchange differences interest, which is not the CIA operating profit: higher spending borrowed currency and then invest in low interest currencies, then sell forward currency investment risk, results high.

Carefully consider the CIA two parameters, the two measures seem CIA Alarm hedging activities and scope. Hedging transactions, which can be seen from the opposite, bloom currency and then sell, because the currency of this currency pair high-interest (group 1), or the use of currency and higher-yielding currencies selling, eyes, color of UNG is low (2). At the same time, the company expects to cover lock the exchange rate, which means that the loan payment is due.