Cost of financial hedging.

Hedge cost is the price paid to reduce financial risk. For currency forwards: spread between spot rate and forward rate. For options: premium paid. For interest rate swaps: periodic payment. Expressed in basis points (bps) where 100 bps = 1%. Typical FX forward hedge: 50-150 bps depending on currencies and duration.

1M exposure hedged 80% at 75 bps spread = 800k × 0.75% = 6,000 hedge cost. That's 0.6% of gross exposure - reasonable price for eliminating 80% of FX risk. Alternative: unhedged and hope currencies move favourably. Track record shows hedging wins over time when moves go wrong, loses when moves go right. Expected value over long term is close to zero minus the spread cost.

Hedging philosophy matters. Full hedging: predictable margins but no upside from favourable moves. Partial hedging (50-80%): balance. No hedging: volatility exposure. Most businesses hedge 50-80% of forward-committed exposure as balance. Over-hedging (100%+) or speculative hedging is usually treasury going beyond mandate.

Run it with sensible defaults

Using exposure amount of 1,000,000, hedge spread of 75, hedge percentage of 80%, the calculation works out to 6,000.00. Nudge the inputs toward your own situation and the output recalculates instantly. The defaults are meant as a starting point, not a recommendation.

The levers in this calculation

The inputs — Exposure Amount, Hedge Spread (bps), and Hedge Percentage % — do not pull with equal force. Frequency and unit price pull the total in different directions. The biggest surprise for most people is how small recurring amounts compound into large annual figures — that's where this calculation earns its keep.

How the math works

Hedged amount = exposure × hedge %. Cost = hedged × spread / 10000. Cost % of exposure = cost ÷ exposure × 100. The working is transparent — you can verify every step yourself in the formula section below. No black box, no opaque "proprietary model".

What the score tells you

Headline financial numbers — income, savings, debt — each tell part of the story. This calculation stitches several together into a single read you can track over time. The value is in the direction, not the absolute number.

What this doesn't capture

The score is a composite of the inputs you provide. Life context — job security, family obligations, health, housing — doesn't appear in the math but shapes the real picture. Use the number as a prompt, not a verdict.