Hedging: How does it work for spreadbetting?

Hi, I'm just starting out on spreadbetting.

I would like to learn about hedging and if this could be used to limit risk in spreadbetting.

Thanks.

the short answer is 'yes, probably'. But you'd need to give a bit more detail on what you're trying to do and what risk you're trying to hedge out before more specific advice could be given...

MoonlitBay said:

Hi, I'm just starting out on spreadbetting.

I would like to learn about hedging and if this could be used to limit risk in spreadbetting.

Thanks.

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Jack o clubs makes a valid point, what are you trying to hedge? - also hedging uses up margin in your account and can be an expensive option in spreadbetting if you are trying to hedge with options because of the buy/sell spreads and current volatility premuims.

Personally unless you have a large account hedging is probably not an option.

I read this article about going both short and long at the same time for currencies that usually trade within a bound range, e.g. EUR/GBP.

http://www.actionforex.com/forex_an...week_(profit_target:_325_pips)_2007092628966/

Care to explain how this strategy makes profit if we're going both long and short at the same time?

Thanks!

A hedge is an insurance against adverse moves.
For example being a farmer with a field full of grains and seeing a grain market price that covers cost and locks in good profit margin would lead most to think it a good idea to sell forward delivery promise at this price. Once he has sell locked in he is hedged.

If you are spreadbetting you are taking a directional bet. Why would you want to hedge anything? You are a buyer or seller and that is it. If you wish to reduce your risk you take a smaller position.

As to the FX link. I think thoose guys are clearly totally out of their minds.

TWI said:

If you are spreadbetting you are taking a directional bet. Why would you want to hedge anything? You are a buyer or seller and that is it. If you wish to reduce your risk you take a smaller position.

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I was thinking currency risk, market risk etc. I've got a long-standing cable position for example, to cover me for my US stocks portfolio. Similarly if I'm nervous about the market, I'll generally slap on a FTSE short rather than reduce down my portfolio holdings, which are largely comprised of small-caps and therefore expensive to trade in and out of. Mind you, these are actual holdings rather than s'bet positions, but the same principal would apply.


EDIT: Having looked at that 'strategy' link, I'm with TWI. Can't see the logic there at all.

THE best hedge for a punter is to reduce or cover the position especially with spread betting where the costs (can be) very high.

If you're a farmer (*wheat moves up and down), an airline (jet fuel moves up and down) or a global bank (currencies move up and down) then hedging is right up your alley but if just a speculator then it's not for you.

PS. My advise if you're just starting out with spread betting is to simply get trading with very small amounts of money (10 pence a point etc). Go long, short, bet this way, that way, short term trades and those lasting a week or so. This will give you execellent experience about how things work (sadly though not the direction of the market) and how to place orders and how they in turn work etc. This exercise is NOT about making or losing money but because your stakes are so small even if you get everything wrong and make some stupid mistakes your losses are unlikely to top more than £50.

Good luck anyway