Hedging is basically done to
reduce the risk of your current investment positions. Lets say you are long on
a stock , now if shares of that stock drop significantly you may lose your profit or
increase your losses.
To counter that, you may buy a put option contract of stock which allows you to sell your shares at a specified price before the contract expires. Now, if it drops below the contract price, you can execute your put option and sell your shares (to the option's writer) at a price higher than the market. Thus, you have the ability to lock in a guaranteed price for your asset no matter what the market price is.....
A hedge is a strategy intended to protect an investment or portfolio against loss. It usually involves
buying securities that move in the opposite direction than the asset being
protected.
To counter that, you may buy a put option contract of stock which allows you to sell your shares at a specified price before the contract expires. Now, if it drops below the contract price, you can execute your put option and sell your shares (to the option's writer) at a price higher than the market. Thus, you have the ability to lock in a guaranteed price for your asset no matter what the market price is.....
Hedgers look to
protect against a price change; they make their buy and sell choices as
insurance, not as a way to make a profit, so they choose positions that offset
their exposure in another market.
Making
an investment to reduce the risk of adverse price movements in an asset.
Normally, a hedge consists of taking an offsetting position in a related
security, such as a futures contract.
With speculation, the risk of loss is more than offset by the possibility of a huge gain; otherwise, there would be very little motivation to speculate Speculators look to make a profit from price changes. Gambling depends on totally random outcomes or chances.
With speculation, the risk of loss is more than offset by the possibility of a huge gain; otherwise, there would be very little motivation to speculate Speculators look to make a profit from price changes. Gambling depends on totally random outcomes or chances.
Hedgers try to reduce the risks associated with uncertainty,
while speculators bet against the movements of the market to try to profit from
fluctuations in the price of securities.
I read your article about hedging & speculation. That was amazing, Your thought processing is wonderful. The way you tell the thing is awesome.
ReplyDeleteThanks for the post.
Nifty Intraday Tips
thank u sir you can also Check option
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