Currency hedging is the act of entering into a financial contract in order to protect against unexpected, expected or anticipated changes in currency exchange rates in the future. A forward contract locks in the exchange rate for the purchase or sale of a currency on a future date. Hedging can be likened to an insurance policy that limits the impact of foreign exchange risk. Hedging is often achieved through the use of derivatives such as options or futures. Unlike currency forwards, futures and options require the payment of an upfront premium.