Nowadays, the Euro is the second most famous and most frequently traded currency in the world, after the US Dollar. However, recent statistics has shown that the Euro is decreasing in value and for the first time in the last 20 years, it has found parity with the Dollar. There are several factors that have induced this process, but most importantly, it is due to the Russia-Ukraine war since a broad array of sanctions took place during this time.
What’s more, European countries are now experiencing high inflation and experts are predicting that a huge recession might be unavoidable in the near future. Currently, the main problem here is the energy price, since Russian oil and natural gas were under restrictions when the war began. Given the fact that Russia is the largest supplier of these resources to European countries, it is expected that the situation will further deteriorate and the currency will continue its downfall. The main question investors ask is whether it is necessary to hedge the Euro and how to do it the right way.
Why Euro Falls And What You Can Do
The war between Russia and Ukraine has induced several Economic shocks in regard to oil and gas prices and experts are predicting highly negative results in the upcoming months. In June, Europe experienced huge inflation with an 8.6% rate which is one of the highest numbers in recent years.
A big part of the European economy is built upon cheap Russian energy and given the fact that so many sanctions have been imposed during this time, we have seen drastic growth in the gas price. This growth is expected to continue for some time again which is a major concern for every investor.
Generally, it is recommended to stop trading those currencies that are expected to decrease in value. So, the first thing that comes to traders’ minds in this situation is selling all their assets as soon as possible which is pretty reasonable. One more suggestion is to switch to another trading account in order to aim for different opportunities with different currencies.
There is a vast number of high-class brokers that provide numerous account types in order to satisfy every trader. However, it is worth noting that you will have greater possibilities when it comes to Axiory trading accounts compared to other brokerage firms. This is because there are a total of 5 account types on this platform. So, you will have a chance to choose the most suitable one for your requirements, in case you wish to stop trading Euros and switch to other possibilities.
Another available option includes hedging currencies which is a bit hard concept for beginners to grasp, but we will try to explain this process down below.
How To Hedge Euro
If you don’t wish to completely stop trading this currency, then you have an alternative method which includes hedging. Basically, hedging currency means that companies or individuals make an agreement beforehand to sell a certain currency in the future but with today’s price. By doing so, they protect themselves from the possible exchange rate fluctuations. Given the current circumstances, it goes without saying that this process is crucial for every trader!
Those who hedged Euro until it began to fall, now have the possibility to sell it at the price that was available at the moment of hedging. So, they will get much bigger profits. Due to the fact that experts are predicting the Euro to continue decreasing in value, now is the time for traders to hedge this currency in order to avoid losing a significant portion of their funds. However, keep in mind that if the opposite happens and the price goes up, you will not generate higher wins since this resource only acts as insurance and helps you to protect your holdings.
Even though this process might seem difficult at first glance for beginners, keep in mind that it requires only a few steps. The right way of doing it includes buying an offsetting currency exposure. For instance, if some company has the responsibility to provide 5 million Euros in 1 year, then it can sign a contract that it will purchase 5 million Euros exactly on the same date that it is planned to deliver. By doing so, it will be able to sell in the same currency on the same date and significantly reduce the risk of losing a lot of money. This is because in 1 year, the value of the Euro might experience drastic alterations and it is crucial to carry out a hedging process.
