How It Works

The Problem with Traditional Hedging

Many companies use a simple "rolling hedge" strategy: forecast your exposure, lock in 80% with a forward contract, and repeat when it matures. While straightforward, this approach has serious drawbacks:

• You might lock in unfavorable rates at exactly the wrong moment
• Large mark-to-market swings create volatility in your financials
• Difficult to adapt when your forecasts change
• No systematic response to changing market conditions

There's a better way: scenario-based layered hedging.

What is Layered Hedging?

Layered hedging builds your hedge position gradually over time, rather than in large, infrequent chunks. Instead of making one big hedging decision every quarter, you make smaller, incremental decisions based on market conditions.

Think of it like dollar-cost averaging for investments, but applied to currency hedging. By layering your hedges across different time periods and at different market levels, you achieve a blended, averaged rate that smooths out volatility and reduces the risk of locking in at exactly the wrong moment.

The Power of Scenario-Based Rules

Traditional layered hedging uses fixed percentages and time horizons. But markets aren't static—they move through different regimes. Your hedging response should reflect these different scenarios.

Scenario-based layered hedging combines the smoothing benefits of layering with intelligent, rules-based decision making. Instead of blindly hedging the same percentage every month, you define rules that trigger different hedging behaviors based on where the market sits relative to historical thresholds.

How It Works

You define market scenarios based on historical data, and each scenario triggers a specific hedging response:

• Favorable rates (below historical averages) — Conservative hedging: small increments, lower maximum coverage, shorter tenors. Don't rush to lock in rates that might improve further.
• Neutral rates (near historical averages) — Moderate hedging: balanced approach, steady layering toward target coverage.
• Unfavorable rates (above historical averages) — Aggressive hedging: larger increments, higher maximum coverage, longer tenors. Protect your exposure urgently.

What Each Scenario Defines

Advanced Considerations

• Forward rate thresholds — Only execute a hedge if the forward rate is above your budget rate. Prevents locking in unfavorable forward points.
• Stability checks — Hold back on hedging if the market has been stable. Why lock in a rate if it's likely to stay flat?
• Tenor-based targets — Target 100% coverage for 0-3 month exposures, but only 70% for 3-6 months, 50% for 6-9 months. Reflects decreasing forecast accuracy over time.
• Policy constraints — All decisions comply with your board-approved risk management policy, including minimum and maximum hedge ratios.

The Benefits

AI-Enhanced Recommendations

While scenario-based rules provide a solid, transparent foundation, our AI layer adds market intelligence:

• Analyzes current market conditions and recent volatility
• Monitors economic events and news that could impact rates
• Identifies support and resistance levels from technical analysis
• Suggests when to wait for a better rate or hedge immediately

You get the best of both worlds: systematic, rules-based discipline combined with intelligent, market-aware insights.