> ## Documentation Index
> Fetch the complete documentation index at: https://docs.marks.finance/llms.txt
> Use this file to discover all available pages before exploring further.

# How Hedging Works

> What a Hedge is, and how tenor, carry, margin, and settlement fit together.

A Hedge on Marks fixes an exchange rate today for a settlement that happens later. If you owe or expect a frontier-market currency in the future, a Hedge locks what that costs now, so a move in the rate between now and settlement doesn't change your economics.

## Non-deliverable forwards

Each Hedge is a **non-deliverable forward (NDF)**: a contract that fixes an exchange rate for a chosen tenor and cash-settles the difference at maturity. No local currency ever moves. At settlement, the difference between your fixed rate and the Marks reference rate is paid in **USDC**, in whichever direction it went. This is why you can hedge a currency without holding it or moving it across borders.

## Direction

A Hedge has a side, `buy` or `sell`, depending on which exposure you're covering. The economics of each side, including the price and carry, are shown on every [quote](/guides/open-a-hedge) before you commit, so you can confirm the direction covers the right exposure.

## Tenor

The tenor is how far out the Hedge settles. Supported tenors are **1, 3, or 7 days**. Each Hedge carries a `maturity_at` timestamp, its settlement date derived from the tenor at open. To change the maturity of an existing Hedge, you settle it and open a new one.

## Carry

Holding a Hedge accrues **carry** over its tenor. Carry is a daily rate applied to the notional, and it is signed: a positive number means you pay carry, a negative number means you earn it. A quote breaks carry out both as a daily figure and as the total over the full tenor, so the cost is clear before you open. On a live position, accrued carry is folded into your net P\&L.

## Margin and fees

A Hedge is collateralized in USDC. Opening reserves two things from your balance:

* **Margin** - a refundable deposit, currently around 5% of notional, that backs the position. It returns to your balance when you close, adjusted for P\&L and carry.
* **Platform fee** - the open and close fee, both reserved at open so closing costs you nothing extra.

A quote returns all of this as `required_margin_usdc`, `platform_fee_usdc`, and `total_upfront_usdc`.

## Settlement

At maturity a Hedge settles against the Marks reference rate and the outcome, margin plus net P\&L net of carry and fees, returns to your USDC balance. You can also close early at any time before maturity, which settles at the current rate.

## One open Hedge per market and side

You hold at most one open Hedge on a given market and side. Opening a second on the same market and side returns `409 hedge_exists`. To grow a position, [add to the existing Hedge](/guides/add-to-a-hedge): the added notional nets into the same position at a size-weighted blended rate and inherits the original maturity.

## Exposure cap

Your account has an aggregate exposure cap, the maximum total open notional across all your Hedges. `GET /account` reports both the cap (`max_exposure_usd`) and the headroom remaining (`available_exposure_usd`). An open that would exceed the cap returns `400 exposure_exceeded`.