Hedging in Trading

[vimalanikal]

I am not clear in hedging concept. If anyone knows well clarify it to me.

 

[Quantt]

The idea is when you are long the market, you put another opposite trade, so in an event of major down, you will limit your losses, but keep in mind this will limit your are winning as well, because you'll loose on the hedging trade if everything goes as planned...

 

[Lee Shepherd]

Don't be misunderstood that hedging means going long and short in the same market. That's just bollox and you end up spending twice the comms. Your broker will love you for trading this way.

A true hedge would be a similar market or/and sector. Say for example you are long in one bank stock, you could be short in another banking stock. Therefore as one (assumed over bought) stock is short and the other (assumed oversold) stock is long. Both being in the same sector protects the trade with respect that we will not run out of banks - plus they are too big to fail etc. As one fails, others gain strength/customers. Therefore your trade is hedged in that sector.

Hedging does not have to be the same sector. Another example is gold V's dollar.

NOTE: Hedging is not guaranteed for profits, it just helps to limit losses if you trade in a particular sector or running a large book.

Lee

 

[EnlightenedJoe]

Best hedge is cash. Cash opens up opportunities. Opportunities yield winners. Winners cancel out losers or outgrow them.

 

[gerryg]

The idea is when you are long the market, you put another opposite trade, so in an event of major down, you will limit your losses, but keep in mind this will limit your are winning as well, because you'll loose on the hedging trade if everything goes as planned...

Its not a hedging its a BS. Hedging is intended to "fix" your risk by paying Premium for it. It can be done by futures or options where the future price of the asset you sell or buy is already known now. For example selling samsung shares you may find it useful to buy some call options on apple, its rival. This is called hedging.

 

[joseph1986]

.

Its not a hedging its a BS. Hedging is intended to "fix" your risk by paying Premium for it. It can be done by futures or options where the future price of the asset you sell or buy is already known now. For example selling samsung shares you may find it useful to buy some call options on apple, its rival. This is called hedging.

Hedging isn't just using two different instruments. You can hedge with one index.
The problem is that it's all about timing. You can severely be burned if you don't know what you're doing.

 

[seekingTruth16]

Don't be misunderstood that hedging means going long and short in the same market. That's just bollox and you end up spending twice the comms. Your broker will love you for trading this way.

A true hedge would be a similar market or/and sector. Say for example you are long in one bank stock, you could be short in another banking stock. Therefore as one (assumed over bought) stock is short and the other (assumed oversold) stock is long. Both being in the same sector protects the trade with respect that we will not run out of banks - plus they are too big to fail etc. As one fails, others gain strength/customers. Therefore your trade is hedged in that sector.

Hedging does not have to be the same sector. Another example is gold V's dollar.

NOTE: Hedging is not guaranteed for profits, it just helps to limit losses if you trade in a particular sector or running a large book.

Lee

That's not really a hedge because going in the opposite direction in a similar market or sector could end up increasing your loss. Hedging reduces your risk. Long a stock and want to hedge, then buy a put on that stock.

 

[NVP]

Hedging originated from merchants wishing to lock in guaranteed positions on physical products by selling or buying them in advance ......it wasn't to make money ....simply to limit exposure

 

[predator]

Hedging is a cool feature but sometimes it's quite hard to use it properly.