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Friday 19 October 2012

What is hedging?



Hedge
risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commoditiescurrencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies.


To reduce the risk of an investment by making an offsetting investment. 

There are a large number of hedging strategies that one can use. 

To give an example, one may take a long position on a security and then sell short the same or a similar security. 

This means that one will profit (or at least avoid a loss) no matter which direction the security's price takes.

 Hedging may reduce risk, but it is important to note that it also reduces profit potential.


below in a  good example of a usdcad hedge technique

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