John768 Carter

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What is dynamic hedging in forex and how is it applied?

Dynamic hedging involves continuously adjusting hedges as market conditions shift. Institutions use it to manage exposure from options or structured products. For example, if a bank sells a USD/JPY option, it may rebalance hedges daily to stay neutral. Retail traders can apply dynamic hedging by reducing or adding offsetting trades when volatility changes. Benefits: precise risk control. Risks: frequent adjustments increase costs, and sudden spikes can still overwhelm hedges. Dynamic hedging is a professional approach to ensure protection isn’t static but evolves with markets. It highlights how hedging is not one-time but an active, ongoing process.