# Hedging Spot Forex With Binary Options

## Currency Exchange Introduction

What I want to do in thistutorial is to give you an intuitive sense of how a marketfor currencies would actually work. And it's very noninuitive fora lot of people because we're going to be talking aboutcurrencies becoming more expensive or cheaper, or theprice of a currency in terms of another one.

And what I want to dois give you a very intuitive feel for that. So let's say, just because thisis a hot topic right now, let's just make the twocurrencies the Chinese renminbi and the U.S. dollar. And the unit of exchange inChina is a little confusing because sometimes they use theword renminbi and sometimes the word yuan.

The yuan is the unitof the renminbi. So let's say right now, ifI were to just go on some website and this is not theactual exchange rate right now, but let's say right now thequoted exchange rate is 10 yuan per U.S. dollar. 10 yuan is equal to \$1. And every time I say dollar inthis tutorial, I'm referring to the U.S. dollar.

And I think this makes sense toa lot of people, if I have \$1, I want to convert it toyuan, I get 10 of them. If I have 10 yuan, I want toconvert it to dollars, someone's going to giveme a dollar for it. Now let's imagine a situation,and in the next few tutorials I'll construct actual tradeimbalances where this would actually happen, but let's saywe live in a reality where

there are 1,000 yuan. So let's say someone has1,000 yuan and wants to convert to dollars. Now, let's say on this side, andif we just superficially looked at this 1,000 yuan andlooked at the quoted rate, we'd say, hey, that 1,000 yuan,you get 10 yuan per dollar, so that should be\$100 at the quoted rate.

Let's say you have two otheractors over here, and obviously these markets involvemany, many, more than just the three people, but thiswill help us simplify, or at least understand how theseexchange rates would work. Let's say that this person righthere with the mustache and maybe a hat as well, let'ssay that he has \$100 that he needs to convert to yuan. Maybe he wants to buy someChinese goods, maybe he's a

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