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Igor

Anticipatory Hedge Definition

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As an example, a trader in Canada may want to purchase commodity options on corn from a farmer in Chicago, but is worried that in the coming days before the trade is to be settled, the currency of the transaction (US dollars) may gain value over the CAD. He then assumes a long position on the US Dollar to offset any effect the USD gain will have on his option trade (i.e. hedge against a USD gain causing him to pay more for the options transaction). This is an anticipatory hedge.

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