When you trade-in forex, you are basically trading using leverage. For example, if you have a 100,000 dollar position in one currency, you don’t actually tie up the whole amount but only a very small part, for say- 1 per cent. Since currencies don’t move too much during the day and you trade using leverage, even a small sum of money can control a much bigger financial position. If things take a turn, hedging can help you from losing a lot of money.