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Forex Education

Offset Your Mortgage Rates With Currency Hedging

March 21, 2019
BY Emma Richards

Credit rating agencies and financial experts of almost every nation are warning that the biggest house price decline in recent years might have already begun. Currency hedging may well be the answer once again. With mortgage delinquencies on the rise and house prices falling, it all seems disturbingly familiar. Some countries have hit a property debt/GDP ratio of over 120% already, which is a huge risk factor that banks are just not mentioning. If your nation’s currency has taken a few hits recently, you might want to tighten the belt in preparation for a rise in your mortgage repayments. Alternatively, hedging your mortgage with a well-placed forex sell order can create profits from weakening currencies and balance out your losses. Keep reading to see how it works.

The beginnings of a loan squeeze

If your mortgage is starting to skyrocket, currency hedging could save your home.

Property prices are expected to fall further in Q2 of 2019. To avoid a repeat of the 2007 collapse, the big banks say they have started imposing more stringent screening parameters for home buyers. But is it enough? Currency hedging became popular after forex traders realized they could weather the storm and even profit from a negative economy. The financial crisis of 2007 occurred because of many oversights, one being the liberal way in which banks were handing out unsecured loans like there was no tomorrow. The 2019 restrictions should reduce the risk of future loan defaults, but it will also reduce the liquidity of the housing market. This attempt to deflate the growing property bubble is a delicate move by the banks that doesn’t offer any guarantee.

Many countries could suffer from coming property price falls in 2019. With global debt/GDP ratios surpassing healthy levels in Australia, the UK, the US, and most of Scandinavia, it seems the banks have a real battle ahead of them. Forecasted corrections in South America, China, and South Korea will also create house price declines in the coming year.

Protecting yourself with currency hedging

Currency hedging can be done with a click of a button.

There are professional traders that use the forex market for currency hedging and even to make a living, but they’ve spent months and even years perfecting their trading performance. If your income is tight and you don’t want a rising mortgage to affect your monthly budget and lifestyle, hedging might be the answer, and it’s easier than you might think.

Let’s say you live in the UK. Brexit has taken its toll on GBP and your Swiss franc loan repayments are on the rise. As GBP falls further, your mortgage payments can rise in proportion. In 2008, people saw their mortgage payments rise by as much as 300%. Loan defaults occurred and people sold their homes at a fraction of the value just to escape bad debt. Other simply lost everything.

This is where currency hedging comes in. Now imagine, as 2019 moves into Q2, you make a ‘Sell’ order for GBPCHF (Pound Sterling/Swiss Franc) before your payments become unmanageable. As GBP loses value, you profit from the ‘Sell’ order. The more your mortgage rises from currency price conversion, the more you profit from your trade. While everyone around you is seeing their monthly outgoings exceeding their income, you are balancing your finances in the same way that banks and nations do… with the foreign exchange market (forex). If GBP later regains strength and your mortgage repayments start to ease, you simply close your GBPCHF order with a click of a button and withdraw your money.

How to start trading forex

To start currency hedging, simply get access to the forex market through a broker.

If you have a computer, an internet connection, an accepted transaction method, and valid credentials, getting access to the foreign exchange market and doing a little currency hedging is fairly straight forward. Simply go through the signup process, which takes about 15 minutes. Then start getting familiar with the trading software while your application is reviewed and approved. Try the risk-free demo account to understand how to open and close orders while you wait. Exness doesn’t have a minimum trading volume requirement. So long as you stay active in the markets, you’ll always have instant access to 100+ currency pairs.

Forex pairs are one of the only financial instruments that can offset losses from a weakening economy using a currency hedging strategy. By having an active trading account at the ready, you give yourself an option to protect your finances. An option that some people might one day wish they had.


Get access to the foreign exchange market

Set up an Exness Account Here

Not sure how to get started? No problem. Follow this step-by-step guide.

how to start trading

This article is a marketing communication. It does not constitute investment advice or research. Its content represents the general views of our experts. It does not consider individual readers’ personal circumstances, investment experience, or current financial situation. This article is not prepared in accordance with legal requirements promoting independent investment research. Exness is not subject to any prohibition on dealing before the release of the article. Readers should consider the possibility that they may incur losses. Therefore, Exness is not liable for any losses incurred due to the use of its articles. Please note that past performance of an asset is not a reliable indicator of future results.


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