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What is hedging and how it helps control FX exposure
What is hedging and how it protects companies from FX volatility, plus the role of stablecoins in managing currency risk.
Written by
Conduit
Published on
February 16, 2026
What is hedging and how it protects companies from FX volatility, plus the role of stablecoins in managing currency risk.
Anyone who follows financial markets or frequently deals with international transactions has likely heard the term “hedge”. Hedging is a financial strategy designed to protect operations against market volatility, acting as a form of “insurance” to help prevent losses.
It is used in investments, commodities, and equities, but also in foreign exchange operations, serving as an important tool for companies that operate frequently and in large volumes and need mechanisms to ensure liquidity.
In this article, we will explain what hedging is, how it works in practice, and the main advantages of this strategy for companies exposed to currency volatility. We will explore:
Hedging is a tool that works like insurance to protect financial operations in case they do not deliver the expected return. The main goal of this strategy is to partially or fully protect an asset against fluctuations in prices, rates, or currencies. By hedging, an investor or company significantly reduces the risk of an investment by offsetting potential losses.
First, it is important to understand that hedging is not intended to generate profits, but rather to ensure stability and financial predictability. When an exporting company executes an FX hedge, for example, it is not speculating on the future value of the dollar. Instead, it is ensuring that regardless of the exchange rate, its profit margin remains protected.
Four financial protection strategies stand out as the most commonly used:
FX hedging works as a shield against exchange rate fluctuations and is especially important for companies engaged in international trade. This approach uses instruments such as futures contracts, FX options, and swaps to lock in currency values and protect against unfavorable movements.
For exporters, FX hedging ensures that depreciation of the foreign currency does not impact their margins. Similarly, importers can protect themselves against appreciation of currencies such as the U.S. dollar, avoiding price increases for end consumers.
Originally created to protect farmers from price swings, commodity hedging allows producers to ensure predictability and economic sustainability. Through futures contracts, options, forward contracts, and barter operations, it is possible to lock in sale prices for products such as soybeans, corn, and cattle.
For stock market investors, equity hedging helps prevent large losses caused by volatility. Common strategies include buying put options, using index futures contracts, and investing in assets that benefit from specific market movements.
Commodities are considered one of the most underutilized hedges against inflation during periods of economic expansion. Assets such as metals and carbon credits have gained prominence because they are exposed both to cyclical strength and to new measures aimed at combating climate change.
In addition, instruments such as inflation swaps allow companies with fixed revenues and inflation-indexed expenses to protect themselves against rising prices, preserving profit margins and ensuring predictability in cash flows.
To implement financial hedging strategies, several instruments are available in the market. The choice mainly depends on the type of risk that needs to be minimized.
Futures contracts represent a commitment to buy or sell a certain quantity and quality of an asset at a future date, with the price set in the present. This standardized instrument is traded on exchanges and settled daily, providing protection against price fluctuations.
Options work like financial “insurance.” By paying a premium, the buyer of a call option acquires the right to buy an asset at a predetermined price. A put option grants the right to sell an asset at an agreed price, even if the market price falls below that level.
Swaps allow the exchange of financial cash flows between two parties. In an FX swap, values in different currencies are exchanged. In an interest rate swap, benchmark rates are exchanged, such as fixed for floating rates, protecting against FX and interest rate fluctuations.
Similar to the futures market, a forward contract also involves a future purchase or sale at a pre-agreed price. However, it is less standardized, allowing customized conditions. Settlement occurs only at maturity, without daily adjustments.
Currency funds invest at least 80% of their assets in instruments linked to foreign currency fluctuations. They are ideal for those seeking protection against depreciation of currencies or diversification, and they are widely used as FX hedging tools by importing companies.
When considering financial hedging operations, it is essential to evaluate the balance between protection and opportunity. The decision to hedge should be based on a careful analysis of both benefits and limitations.
The main advantage of hedging is its ability to significantly reduce the risk of financial losses caused by fluctuations in prices, exchange rates, or interest rates. This protection provides financial stability, allowing companies to maintain more consistent operations even during periods of market volatility. In addition, hedging supports planning and budgeting by increasing predictability of cash flow and revenues, which is crucial for efficient corporate management.
However, every form of protection comes at a cost. Implementing hedging strategies often involves significant expenses, such as option premiums, brokerage fees, and margin requirements for futures contracts, which can impact the overall profitability of an investment. Another key limitation is that hedging does not eliminate all risks entirely. It only protects against specific risks and does not cover every possible adverse scenario.
Hedging becomes particularly valuable when risk exposure could compromise a company’s financial sustainability. For sectors such as agribusiness, energy, and finance, where price volatility is common, hedging is an essential tool. It is especially recommended when stability is prioritized over extraordinary gains, aiming to maintain consistent positive results over time rather than achieving occasional exceptional profits.
Stablecoins have emerged as an important ally by enabling companies to directly reduce exposure to volatility in local currencies. By converting part of their cash, revenues, or short-term reserves into stablecoins pegged to hard currencies such as the U.S. dollar, companies can protect the value of these resources against abrupt devaluations while maintaining financial predictability.
Although they do not replace traditional hedging instruments, stablecoins can serve as a simpler operational alternative in certain contexts, especially for short-term protection and for international operations that require immediate liquidity and capital mobility.
Conduit provides a stablecoin-based payments and liquidity management infrastructure that enables companies to reduce FX exposure, protect working capital, and operate globally with greater predictability.
Through a single API or web platform, it is possible to convert, hold, and move funds across multiple currencies efficiently, securely, and in compliance with regulatory requirements. Get in touch with our team to learn how to integrate stablecoins into your hedging strategy and optimize your international operations.
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