hedging using futures?

[johnygadar]

Hi, I need to ask that is it possible to hedge using futures when holding forex pairs?
For e.g: If I sell USD/RMB and hold it and earn interest, and simultanously buy a future USD/RMB, so to cover exchange rate risk for the future. Is this possible?
Thanks in Advance!

 

[Rhody Trader]

It is possible, but a useless operation. The futures factor in the interest such that whatever you gain on your USD/RMB position you will lose on your futures hedge. And because of spreads and transaction costs, you'll actually end up losing money on the whole thing. This is referred to as covered interest parity. You cannot take advantage of interest rate differentials without exposing yourself to exchange rate risk.

 

[johnygadar]

It is possible, but a useless operation. The futures factor in the interest such that whatever you gain on your USD/RMB position you will lose on your futures hedge. And because of spreads and transaction costs, you'll actually end up losing money on the whole thing. This is referred to as covered interest parity. You cannot take advantage of interest rate differentials without exposing yourself to exchange rate risk.

Sir there are instances when there is some profit margin, and if you have some leverage it can be a good take.
So how is it executed, can you tell the procedures or brokers that provide this facility? Sorry for asking but I am a newbie.