Micro-hedging is a currency management strategy used to reduce risks associated with the value of specific commercial transactions, such as accounts payable and receivable at the item level.
A hedge is entered for the exact amounts and dates required to protect the value of such item(s) and adjusted if parameters change. The result is certainty achieved in the value of such items in home currency, akin to Balance Sheet Hedging but at a much more granular level and thus with great accuracy.
A micro-hedging programme can be done manually for companies with large individual items. However, it works best for businesses with large volumes of commercial transactions that can be accessed via API to automate their FX risk management fully.
Micro-hedging is popular in industries such as Travel, Wholesale, Logistics, Staffing, & Recruiting, where it is important to lock in the value of foreign costs or revenues and protect profit margins as a result.