Foreign exchange hedging refers to a strategy adopted in the financial market to reduce or eliminate risks. Common hedging methods include using two corresponding transactions to offset the risk of potential losses, or holding opposite positions in an asset portfolio to offset the risk. Foreign exchange hedging is a risk management tool that can help investors reduce risk and volatility, thereby protecting investment portfolios.

In the foreign exchange market, hedging can be achieved in two basic ways. The first is unilateral hedging. This method has limited usage scenarios and is generally used in relatively single investment management. The second approach is bilateral hedging, which leverages holdings or trades to balance in the same or different markets. The formulation of hedging strategies needs to be considered and formulated based on various factors such as market conditions, asset types, and investment styles.

Foreign exchange hedging is a method commonly used in international trade to deal with the risk of exchange rate fluctuations. For example, in order to avoid rising costs due to fluctuations in the U.S. dollar exchange rate, a company may consider using hedging instruments, such as futures or options hedging, to lock in the best exchange rate. If the market exchange rate is lower than the locked exchange rate, the enterprise can still trade at the locked exchange rate, thus avoiding the risks and uncertainties caused by exchange rate fluctuations.