John Mason Taylor#64

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What is tail risk hedging in forex portfolios?

Tail risk hedging protects against rare, extreme events. Institutions use out-of-the-money options, structured products, or cross-asset hedges like gold and Treasuries to cushion black swan losses. For example, buying cheap USD/JPY calls during calm periods may pay off during crises when yen spikes. Benefits: survival through shocks, smoother long-term returns. Risks: hedges cost money and often expire worthless, reducing performance. Retail traders can apply mini versions—using small protective options or diversifying into safe havens. Tail risk hedging acknowledges that crises are not “if” but “when.” The goal is not to predict the event but to survive it without losing everything.